Investing in 80C instruments may help even if you don’t require them!

Published: March 10, 2021 at 6:37 pm

In this article, tax expert Manmohan Sethumadhavan explains a situation where investments in products eligible under section 80C may be beneficial even if the net income is lower than the taxable limit.

Investments like EPF, PPF, ELSS etc., are made in a financial year to reduce the tax outgo by claiming a deduction u/s 80C of the income tax act. Currently, the maximum deduction allowed is 1.5 Lakhs. But many small salaried taxpayers do not avail this benefit or just avail it partially since their net income would not be taxable even without this deduction.

Such people may benefit in future if they make some investments (if cash flow permits) and claim full deduction under 80C even if they do not require it. This happens when they get some arrears of their salary in the future years.

When arrears of salary are given in lump sum, it is actually taxed in the year it is received. But, a relief u/s 89(1) can be claimed by the taxpayer by submitting Form-10E. This relief is calculated by apportioning the arrears received to the relevant previous financial years to which such arrears are related and finding out if there is any tax reduction if such arrears were taxed in the respective previous years as if it had been received then. If there is any tax benefit, it can be claimed as a relief u/s 89(1) in the current year.

If a person had claimed an 80C deduction in a previous year, even if it was not needed, this arrears of salary, when apportioned to that year, would not increase his tax outgo to that extent in the relevant previous year, and thus claim relief in the current year.


For, e.g., in FY2020-21, a person received a gross salary of Rs.6,35,000, and after a standard deduction of 50,000 and an HRA deduction of 90,000, his net salary is Rs.4,95,000, for which he needs to pay no tax. But in anticipation of arrears to be received in the next year, he invests in some ELSS this year and claims a deduction of Rs.1.5 Lakhs in his returns even though not needed.

In FY2021-22, his gross salary is Rs.8,00,000, and he needs to pay tax. In addition to this, he receives salary arrears of Rs.1,50,000 related to the previous year. But since he had already made a deduction of Rs.1.5 Lakhs in the previous year, which was left unutilised, there would be still no tax outgo when these arrears are apportioned to the previous year. Had he not made this deduction claim in the previous year, he would receive no relief u/s 89(1) in FY2021-22 and would have to pay more tax.

It is important to note that people making such an investment in anticipation should ensure that it is claimed in their income-tax returns also, else which it would serve no purpose. I am just pointing out an option available. People should read relevant articles from freefincal to understand that focus should not be on saving tax, rather on your goals, liquidity, plan, and asset allocation.

Do share if you found this useful

We now publish both equity fund and debt fund (+ hybrid fund) screeners each month!
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 415 investors and advisors use this!
Unlock the secrets of successful financial advisors and entrepreneurs with our new course!
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Join our courses in exclusive Facebook Groups!

  • 550+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills and building a community that trusts you and pays you!
  • Goal-based portfolio management! Join 2220+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content)  in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps