Salaried employees form the major chunk of the overall taxpayers in the country and the contribution they make to the tax collection are quite significant. Income tax deduction offers a gamut of opportunities for saving tax for the salaried class. With the help of these deductions, one could reduce his/her tax substantially.
There are some “Exemptions” and “Deductions” which you will find useful while planning your taxes.
What is the difference between Exemption and Deduction?
- Benefit of an exemption can be claimed provided it is received by an employee. Unless there is specific salary component, exemption cannot be claimed. For example exemption on account of HRA, or Leave Travel Allowance etc.
- The benefit of deduction can be claimed by making certain investments or making payments of specific nature. For example an investment in ELSS or payment of Life insurance policy’s premium.
In this topic, we have tried to cover most of the Deductions available to an employee from her salary income. The Exemptions are discussed in a separate article.
Below table gives a bird’s eye view of the maximum deductions available. We have also discussed the deductions in detail below this chart.
Deductions under 80C / 80CCC & 80CCD
You can read in more details about the above deductions here:
1. Section 80C:
Section 80C is the most extensively used option for saving tax. Here, an individual or a HUF (Hindu Undivided Families) who invests or spends on stipulated tax-saving avenues can claim deduction up to Rs. 1.5lakh for tax deduction.
Expenditure/investment u/s 80C isn’t allowed as a deduction from income arising due to capital gains. It means that if the income of an individual comprises of capital gains alone, then Section 80C cannot be used for saving tax. Some of such investments are given below which are eligible for an exemption under 80C, 80CCC, and 80CCD (1) up to maximum of Rs.1.5lakh.
· Life insurance premium
· Equity linked savings scheme(ELSS)
· Employee provident fund(EPF)
· Annuity/pension schemes
· Principal payment on home loans
· Tuition fees for children
· Contribution to PPF Account
· Deposits in Sukanya Samriddhi Account
· National Saving Certificate (NSC)
· Specified Fixed Deposits
· Post office time deposits
· National Pension Scheme
2. Section80D: Medical Insurance Deduction
Section 80D is a deduction you can claim on medical expenses and Health check-ups. One could save tax on medical insurance premiums paid for the health of self, family and dependent parents. The limit for section 80D deduction is Rs. 25,000 for premiums paid for self/family.
For premiums paid for senior citizen parents, you can claim deduction of up to Rs.50,000 are also allowed and covered within the overall limit.
1. Section 80E: Deduction for loan for Higher studies
Income Tax Act provides a deduction for interest on education on education loans. The significant conditions attached to claiming such deduction are that the loan should have been taken from a bank or a financial institution for pursuing higher studies (in India or abroad) by the individual himself or his spouse or children.
One may begin claiming this deduction beginning from the year in which the loan starts getting repaid and up to the next seven years (i.e. total of 8 assessment years) or before repayment of the loan, whichever is earlier. Even a legal guardian could avail this income tax deduction.
4. Section 80TTA: Deduction on Savings Account Interest
Section 80TTA of the income tax act, 1961 offers a deduction of up to INR 10,000 on income earned from savings account interest. This exemption is available for Individuals and HUfs.
In case the income from bank interest is less than INR 10,000, the whole amount will be allowed as a deduction.
However, in case the income from bank interest exceeds INR 10,000, the amount after that would be taxable.
5. Section 80TTB: Deduction on Savings Account Interest for Senior Citizen
Section 80TTB is a provision whereby a taxpayer who is a resident senior citizen, aged 60 years and above at any time during a Financial Year (FY), can claim a specified amount as a deduction from his gross total income for that FY. This section is applicable w.e.f 1 April 2018.
A deduction of lower than Rs.50,000 or an amount from a specified income is allowed from the gross total income. Specified income is any of the following income in aggregate.
· Interest on bank deposits(Saving or fixed);
· Interest on deposits held in a co-operative society engaged in the business of banking, including a co-operative land mortgage bank or a co-operative land development bank; or
· Interest on post office deposits.
6. Section 80GG: Deduction for Rent Paid
This is available if you stay in rented house. Again, if you are receiving HRA as part of your salary, you can claim deduction for HRA. If you do not receive HRA from your employer and make payments towards rent for any furnished or unfurnished accommodation occupied by you for your own residence, you can claim deduction under section 80GG towards rent you pay.
Here are a few condition that must be fulfilled-
· You are self-employed or salaried
· You have not received HRA at any time during the year for which you are claiming 80GG HRA component should not form part of your salary to claim 80GG.
· You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of the offices, or employment or carry on business or profession.
· In case you own any residential property at any place, for which your income from house property is calculated under applicable section, no deduction under section 80GG is allowed.
7. Section 80CCD: National Pension Scheme (NPS)
Section 80CCD of the income tax act deals with deduction offered to individuals contributing to the NPS. As per section 80CCD, until the year 2015, an individual was eligible to claim an income tax deduction of up to Rs. 1 lakh against contributions made to the NPS. The maximum amount payable to the NPS to Rs. 1.50 lakh per annum. Additionally, a new sub-section 1B was also introduced, which offered an additional deduction of up to Rs. 50,000 for contributions made by individual taxpayers towards the NPS.
The additional deduction of Rs.50000 under section 80CCD (1B) is available to assess over and above the benefits of Rs. 1.50 lakhs available as a deduction under section 80 CCD (1). Thereby, raising the maximum limit of exemption to Rs.2.00 lakhs with Section 80CCD (1) + Section 80CCD (1B).
8. Section 80G: Deduction for Donation
Contribution made to certain relief and charitable institutions can be claimed as a deduction under section 80G of the Income Tax Act. All donations, however, are not eligible for deductions under section 80G. Only donations made to prescribed funds qualify as a deduction
This deduction can be claimed by any taxpayer- individuals, company, firm or any other person.
This deduction can only be claimed when the contribution has been made via a cheque or a draft or in cash. Any donations made in cash exceeding Rs. 2,000 will not be allowed as deduction. The donation above Rs. 2,000 should be made in any mode other than cash to qualify as a deduction under section 80G.
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