top of page

File Your ITR now

FILING ITR Image.png
Search

How to Claim 80C Deductions and Avoid Tax Notices for Incorrect Reporting in Your ITR

  • Writer: Bhavika Rajput
    Bhavika Rajput
  • 4 hours ago
  • 8 min read

Section 80C of the Income Tax Act offers individuals and Hindu Undivided Families (HUFs) an opportunity to reduce their taxable income by claiming deductions on various eligible investments and expenses. With a limit of ₹1.5 lakh per financial year, the 80C deductions can significantly lower your tax liability, making it one of the most utilized sections for tax-saving purposes. However, failing to report these deductions accurately or making errors in the filing process can lead to tax notices and penalties. Let us explore how to claim 80C deductions correctly, the common pitfalls to avoid, and how to respond if you face tax notices for incorrect reporting. With tools like TaxBuddy, the process of filing income taxes becomes more seamless and error-free, ensuring that you maximize your deductions without any hassles.

Table of Contents

How to Claim 80C Deductions and Avoid Tax Notices for Incorrect Reporting in Your ITR?

To claim 80C deductions effectively and avoid tax notices for incorrect reporting in your ITR, ensure that you select the correct ITR form based on your income sources and accurately report all eligible deductions, such as life insurance premiums, PPF, NSC, and home loan principal repayments. Gather the necessary documents, including receipts and statements, and verify your entries with Form 26AS and AIS to ensure consistency. Avoid common mistakes like claiming ineligible investments, filing with incorrect forms, or failing to verify your return, as these errors can trigger tax notices. Using tools like TaxBuddy can simplify the process, helping you claim deductions accurately and avoid potential issues.


What is Section 80C?

Section 80C of the Income Tax Act provides taxpayers with the benefit of reducing their taxable income by claiming deductions on specific investments and expenses. The maximum deduction allowed under this section is ₹1.5 lakh per financial year. Eligible deductions include life insurance premiums, contributions to Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificates (NSC), tuition fees, home loan principal repayments, and more. These deductions help reduce the taxable income, which in turn lowers the overall tax liability. It is essential to understand the various eligible instruments under 80C to make the most of this opportunity and reduce your tax burden effectively.


Step-by-Step Guide to Claiming 80C Deductions

1. Ensure Eligibility

Only individuals and HUFs can claim deductions under Section 80C. The maximum deduction limit is ₹1.5 lakh per year, which is applicable across multiple eligible investments. Ensure that you’re within the prescribed limit to claim the full deduction.


2. Collect the Right Documents

For each eligible investment or expense, maintain proper documentation. This includes:

  1. Life insurance premiums: Policy receipts or statements.

  2. PPF/EPF passbooks: For proof of contribution.

  3. NSC certificates: With accrued interest receipts.

  4. ELSS mutual fund statements: To prove investments.

  5. Tax-saving Fixed Deposits: With a 5-year lock-in period.

  6. Home loan principal repayment certificates: From your bank.

  7. Tuition fee receipts: For up to two children.

Keeping accurate records ensures that you can substantiate your claims when required.


3. Disclose Bank Account Details

Ensure that all active bank accounts are disclosed in your ITR, providing the bank name, account number, and IFSC code. Select the primary account for refunds, as it helps reconcile your interest income and other high-value transactions with the bank's records.


4. Enter Deductions in the Correct ITR Form

Choose the right ITR form based on your income sources. For example, ITR-1 is for salaried individuals, while ITR-2 or ITR-3 is applicable for individuals with business or professional income. Filing with the wrong form can delay the processing of your return and cause you to miss out on deductions.


5. Match and Reconcile with Form 26AS and AIS

Cross-check all investment and deduction details with your Form 26AS and the Annual Information Statement (AIS). These forms contain information about the TDS deducted and other financial transactions, helping ensure that your deductions are accurately claimed and that there are no discrepancies.


6. Verify Your ITR

Once you’ve filed your return, ensure to verify it within 30 days using methods like Aadhaar OTP, net banking, or sending a signed ITR-V. An unverified return will not be processed, and your deductions under Section 80C will not be allowed.


Common Mistakes to Avoid

  1. Claiming Ineligible Investments: Ensure that only the specified investments qualify for deductions under Section 80C, and avoid claiming ineligible instruments.


  2. Duplicate Claims: Avoid claiming the same investment under multiple heads in your ITR.


  3. Missing or Incorrect Documentation: Keep all receipts and certificates related to your 80C claims. Incorrect or missing documents can lead to rejected claims or notices.


  4. Wrong ITR Form Selection: Always use the ITR form that matches your income sources to avoid delays and rejections.


  5. Not Reconciling with Form 26AS/AIS: Failure to ensure consistency between your ITR and these forms can trigger scrutiny or tax notices.


  6. Not Verifying the Return: An unverified return is invalid, and any deductions will not be processed.


How to Respond to Tax Notices for Incorrect 80C Reporting

If you receive a tax notice regarding incorrect reporting of 80C deductions, follow these steps:


  1. Review the Notice: Carefully read the notice to understand which deductions or entries have been flagged by the Income Tax Department.


  2. Gather Supporting Documents: Collect all receipts, certificates, and statements related to the deductions you claimed under Section 80C.


  3. Respond Through the e-Filing Portal: Use the Income Tax Department’s e-filing portal to submit your response. You may need to provide additional information or supporting documents.


  4. Seek Expert Assistance if Necessary: If the notice is complex or requires a detailed response, consider seeking expert help to ensure your response is well-drafted and comprehensive.


How TaxBuddy Can Help You in Claiming 80C Deductions

TaxBuddy simplifies the process of claiming Section 80C deductions by:

  1. Auto-Filling ITR Forms: TaxBuddy automatically populates your ITR forms with information from Form 16 and other sources, reducing the chances of errors.


  2. Suggesting Eligible Deductions: Based on your profile and financial details, TaxBuddy suggests deductions you might be eligible for, including those under Section 80C.


  3. Cross-Verifying Data: The app cross-verifies your data with Form 26AS and AIS to ensure consistency and avoid discrepancies.


  4. Expert Assistance: If you receive a tax notice, TaxBuddy offers on-demand expert support to help you respond to notices and rectify any mistakes in your filing.


Conclusion

Claiming 80C deductions correctly is crucial for reducing your tax liability and ensuring compliance. By following the step-by-step guide and avoiding common mistakes, you can file your taxes confidently. Tools like TaxBuddy simplify the entire process, making it easier to claim deductions accurately, avoid errors, and respond to tax notices efficiently. For anyone looking for assistance in tax filing, I highly recommend you download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.


FAQs

Q1. What are the most common errors when claiming 80C deductions?

The most common errors when claiming 80C deductions include:

  • Claiming ineligible investments: Some investments do not qualify under Section 80C, such as contributions to foreign pension schemes or non-tax-saving FDs.

  • Missing documentation: Not keeping proper receipts or proof of investment, which could result in the disallowance of deductions during scrutiny.

  • Selecting the wrong ITR form: Using an incorrect form for your income sources can lead to the rejection of deductions and delays in processing.

  • Failing to reconcile with Form 26AS/AIS: Not cross-checking the details in these forms can lead to discrepancies, which might trigger tax notices.


Q2. Can I claim 80C deductions for investments made in my spouse’s name?

No, you can only claim deductions under Section 80C for investments made in your name or your dependent children's name. If your spouse is not financially dependent on you, their investments do not qualify for your tax deductions. However, if the investment is made from your taxable income (e.g., joint investments where you are the primary contributor), you may be able to claim the deduction.


Q3. What documents do I need to claim 80C deductions?

To claim 80C deductions, you need the following documents:

  • Life insurance premium receipts: These should clearly state the amount paid.

  • PPF/EPF passbooks or statements: Showing the contributions made during the financial year.

  • NSC certificates: Including interest accrued for the year.

  • ELSS mutual fund statements: Detailing your investments.

  • Tax-saving Fixed Deposit receipts: With a 5-year lock-in period.

  • Home loan principal repayment certificate: Issued by your bank.

  • Tuition fee receipts: For up to two children.

  • Always retain these documents as proof in case of future scrutiny.

Q4. What happens if I forget to verify my ITR after filing?

If you forget to verify your ITR after filing, your return will be considered invalid. An unverified return is not processed, and the deductions, including those under 80C, will not be accepted. You must verify your return within 30 days of filing using Aadhaar OTP, net banking, or by sending the signed ITR-V to the Income Tax Department.


Q5. How can TaxBuddy help me avoid tax notices?

TaxBuddy helps you avoid tax notices by automating many aspects of the filing process, ensuring accuracy in claiming deductions. It cross-verifies all your data against Form 26AS and AIS, reduces manual errors, and suggests eligible deductions based on your profile. Additionally, TaxBuddy offers expert assistance to guide you through the filing process and respond to any notices that might arise.


Q6. How can I check if I’ve claimed 80C deductions correctly?

To check if your 80C deductions are correct, cross-check the deductions listed in your ITR with the information in Form 26AS and the Annual Information Statement (AIS). Make sure the total deductions do not exceed the ₹1.5 lakh limit and that each investment has been correctly claimed. You can also use TaxBuddy’s built-in tools for automatic verification and reconciliation.


Q7. Can I revise my ITR if I made an error in claiming 80C?

Yes, if you realize that you have made an error in claiming 80C deductions or any other section in your ITR, you can file a revised return. A revised ITR can be filed anytime before the end of the assessment year or before the completion of the assessment, whichever is earlier. Make sure to correct the errors and provide the right supporting documents.


Q8. Is there a limit on how many deductions I can claim under Section 80C?

Yes, the maximum limit for claiming deductions under Section 80C is ₹1.5 lakh per financial year. This limit is the aggregate for all eligible investments and expenses, so ensure you do not exceed this amount across various heads like life insurance, PPF, ELSS, and others.


Q9. Can I claim 80C deductions for tuition fees paid for my children’s education?

Yes, you can claim deductions for tuition fees paid for up to two children under Section 80C. The fees must be paid to a recognized school, college, or university, and it only applies to education expenses and not other charges like transportation or development fees.


Q10. What happens if I claim more than ₹1.5 lakh under 80C?

If you claim more than ₹1.5 lakh under Section 80C, the excess amount will be disallowed, and you may receive a tax notice for incorrect reporting. It’s important to ensure that your total 80C claims do not exceed this threshold, or the deductions will be rejected, and you may face penalties for the incorrect filing.


Q11. Can TaxBuddy assist me with Form 26AS reconciliation?

Yes, TaxBuddy helps with the reconciliation of your ITR with Form 26AS and the Annual Information Statement (AIS). The app automatically cross-checks your investment details, ensuring that all deductions are valid and consistent with the data available with the Income Tax Department. This helps avoid discrepancies and minimizes the chances of receiving a tax notice.


Q12. Is there any penalty for incorrectly claiming 80C deductions?

Yes, if you incorrectly claim 80C deductions, you may be penalized. The Income Tax Department may issue a notice for incorrect reporting, and you might face penalties or additional scrutiny. If the mistake is unintentional, it can be corrected by filing a revised return. However, deliberate misreporting or evasion can lead to more severe penalties, including prosecution.





Related Posts

See All
bottom of page