Section 80C of the Income Tax Act, 1961 is an important section for taxpayers. Under this section, taxpayers can avail of a benefit up to INR 1.5 lakh for certain investments. The section aims to encourage individuals to make long-term investments. However, in certain cases, this section will not be applicable and could be reversed. Here are three situations where the deductions under Section 80C may be reversed.
- Premature withdrawal from Employees’ Provident Fund (EPF)
An EPF is an interest-yielding investment, which allows salaried individuals to save for their retirement. However, if the employee makes a withdrawal from the scheme without completion of five years of continuous employment, there will be a tax liability on the total amount withdrawn. The employee’s contribution will be taxed under income from other sources and the employer’s contribution and interest accrued will be taxed under profits in lieu of salary. However, there are exemptions here. If the employment tenure ends due to closure of business, heath-related issues, or any other reasons beyond his control, the employee will not be liable to pay tax on the withdrawn amount.
- Sale of property bought with home loan
When an individual purchases a house through a home loan, he can claim a deduction under Section 24, Section 80C, and 80EE. Any amount spent towards the repayment of the principal of home loan will be deductible under Section 80C. This benefit is allowed only after the construction of the house is completed. If the house owner sells the house within a period of five years from the end of the year where he attained possession of the property, thehousing loan deduction under Section 80Cwill not be applicable. Any amount of deduction that has already been claimed will be considered as income for the year in which the property gets sold, and he will be liable to pay taxes on the income in the year.
- Surrendering Life Insurance Policy
Premium paid for a life insurance policy in a year is eligible for tax deduction under Section 80C. This deduction is applicable on the premium paid for the individual, spouse, and children. The premium amount paid is only eligible for deduction if it is limited to 10% of the sum assured. For policies issued before April 1, 2012, this limit is 20%. If the policy is surrendered within a period of two years from the date of issue, any deductions claimed will be taxable in the year of surrender. If there is surrender of life insurance policy within one year, the company will deduct the full amount of the premium. If the policy is surrendered after two or three years, the insurer will pay back 30% of the total premium amount.
Apart from the aforementioned situations, if you have invested in a Public Provident Fund (PPF) but have withdrawn your investments before a period of five years, the PPF deductions under Section 80C will be reversed and considered as income from the next financial year. Keep these circumstances in mind before you decide to withdraw your EPF, sell the property you purchased with a loan, surrender a life insurance policy, or realize your PPF investment before time. You could lose the benefit of Section 80C that you might have claimed in the past.
Be First to Comment