Income Tax Deductions
Tax deduction is a reduction in tax obligation from your gross taxable income. Tax deductions are deducted from taxable income which is also known as adjusted gross income. Tax deduction varies in amount as different incomes are treated differently under various sections of income tax act.
Income Tax Deductions and Exemptions: Budget 2018-19 Highlights
All Salaried Individuals
· Standard Deduction of Rs. 40,000 has been allowed for salaried taxpayers. Medical Allowance and Transport Allowances has been discontinued.
· Government to contribute 12% EPF contribution for new employees (with less than 3 years of employment) in all sectors.
· New women employees (with less than 3 years of employment) to contribute only 8% of salary for EPF contribution as opposed to 12% earlier.
Senior Citizens
· Tax deduction under Section 80 D for Health Insurance expenditure has been increased to Rs. 50,000 from Rs. 30,000 earlier.
· Expense of up to Rs. 1 lakh incurred on critical illness has been exempted from tax under Section 80 DDB. Earlier the exemption was Rs. 60,000 for senior citizens and Rs. 80,000 for very senior citizens.
· Tax exempted interest income on deposits with banks has been increased from Rs. 10,000 to Rs. 50,000. Further, TDS will not be required to be deducted under section 194A and it has been extended to all FD and RD schemes.
Income Tax Deductions under section 80C to 80U
Section | Permissible limit | Type of investment, expense or income | Eligible claimants |
80C | Maximum Rs. 1,50,000 (aggregate of 80C, 80CCC and 80CCD) | PPF, EPF, Bank FD's, NSC, LIC premium, tuition fees | Individuals, HUFs |
80CCC | Maximum Rs. 1,50,000 (aggregate of 80C, 80CCC and 80CCD) | Pension funds | Individuals |
80CCD | Maximum Rs. 1,50,000 (aggregate of 80C, 80CCC and 80CCD) | Pension fund initiated by central government | Individuals |
80TTA | Up to Rs. 10,000 per year | Interest on bank savings account | Individuals and HUFs |
80CCG | 50% of amount invested subject maximum of Rs. 25,000 | Equity saving schemes | Individuals |
80CCF | Up to Rs. 20, 000 | Long term infrastructure bonds | Individuals and HUFs |
80D | For individual taxpayers- Premium up to Rs. 25,000 in case of individuals and up to Rs. 30,000 for senior citizens For HUFs- Premium up to Rs. 25,000 and up to Rs. 30,000 in case the member insured is a senior citizen or super senior citizen | Medical insurance premium and Health check up | Individuals and HUFs |
80E | No limit defined | Interest on repayment of Education loan | Individuals |
80EE | Maximum Rs. 50,000 | Interest on loan payable for acquiring a residential house property | Individuals |
80G | Differs with the amount of donation | General donations of any recognized society | Individuals, HUF's, Companies, Firms |
80GGA | Depends on quantum of donation | Donations to Scientific Research or Rural development | Those who do not have income from business or profession |
80GGB | Depends on quantum of donation | Donations to political parties | Indian companies |
80GG | Rs. 5000 per month or 25% of total income whichever is less | Rent paid if HRA is not received | Individuals not receiving HRA |
List of Income Tax deductions for FY 2018-19, AY 2019-20
Income tax deductions under Section 80C
Income tax section 80C replaced section 88 and became effective on 1st April, 2006. This section provides provisions on number of payments. The eligible taxpayers can claim deductions of maximum amount up to Rs. 1.5 lakh per year. Both individuals and HUFs are eligible for income tax deductions under 80C.
This section includes the following investments and expenses:
Investment in PPF: You can claim a deduction for investment made in PPF account. You can invest maximum of Rs. 1.5 lakh in a year. Receipts on maturity and withdrawal are tax free.
Investment in National savings certificate: National Savings Certificate are eligible for deductions in the year they are purchased. Interest accrued on such certificates is eligible for tax deductions each year under section 80C, but becomes taxable at the time of maturity.
Investment in fixed deposit: Interest earned on fixed deposits with tenure of not less than five years are eligible for tax deduction under section 80C. For senior citizens, tax exempted interest income on deposits with banks has been increased from Rs. 10,000 to Rs. 50,000. Further, TDS will not be required to be deducted under section 194A and it has been extended to all FD and RD schemes
Premium on life insurance policy: You can claim a deduction under section 80C for the premium paid for a life insurance policy as per the income tax act.
Contribution to employee provident fund: You can claim a tax deduction for the contribution made in employee provident fund under section 80C. Government to contribute 12% of EPF contribution for new employees (with less than 3 years of employment) in all sectors. New women employees (with less than 3 years of employment) to contribute only 8% of salary as EPF contribution as opposed to 12% earlier.
Equity oriented mutual funds: You can claim a tax deduction for investment made in any unit of mutual funds whether it is listed on stock exchange or not.
Repayment of principal on housing loan: you can claim a tax deduction on the principal amount paid for home loan under section 80C.
Tuition Fees: You can claim a tax deduction for the tuition fees paid under section 80C. However, deduction will only be applicable in case the fees in paid by cheque.
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Tax deductions under Section 80CCC and 80CCD for contribution to pension funds
You can claim a tax deduction under Section 80CCC and 80CCD for the contribution made to Pension Funds. If you have contributed any amount in any insurance scheme to receive pension, then you can claim a tax deduction under 80CCC. However, if you have contributed in any pension scheme initiated by central government, up to 10% of your salary such as National Pension Scheme than you can claim a tax deduction under section 80CCD.
Note: As per Income Tax Act, the maximum limit of Rs. 1.5 lakh is an aggregate of deduction that may be claimed under section 80C, 80CCC and 80CCD. However, an exclusive tax benefit is available for NPS subscribers under section 80CCD. As per income tax act, Tier 1 account holder gets an additional deduction for investment up to Rs. 50, 000 in NPS. This deduction is over and above the deduction of Rs. 1.5 lakh available under section 80C of IT Act, 1961.
Note: As per Income Tax Act, the maximum limit of Rs. 1.5 lakh is an aggregate of deduction that may be claimed under section 80C, 80CCC and 80CCD. However, an exclusive tax benefit is available for NPS subscribers under section 80CCD. As per income tax act, Tier 1 account holder gets an additional deduction for investment up to Rs. 50, 000 in NPS. This deduction is over and above the deduction of Rs. 1.5 lakh available under section 80C of IT Act, 1961.
Section 80TTA: Deductions for interest on savings account
You can claim a tax deduction under section 80TTA for interest earned on bank savings account. The deduction is subject to maximum amount of Rs. 10,000. However, the income earned will be first added under the head of Income from other sources first and after that the deduction can be claimed.
Tax deduction under section 80D for payment of medical insurance premium and health check up
You can claim a tax deduction under this section for the payment of medical insurance premium for self, spouse or any child. In addition, any amount paid for health check up can also be claimed for tax deduction which shall not exceed to Rs. 5,000.
Section 80E: Income tax deduction for interest on Education Loan
You can claim a tax deduction under section 80E for interest paid on repayment of Education loan. The deduction can only be claimed on the interest paid on repayment of loan and not on the principal amount.
You can claim a tax deduction under section 80EE for an interest payable for loan taken for acquisition of a residential house property. The maximum deduction claimed is Rs. 50,000.
Tax deduction under section 80G, 80GGA, 80GGB and 80GGC for donations
You can claim a tax deduction under section 80G for a general donation made during a financial year. Deductions under section 80GGA can be claimed if donation is made for Scientific Research or Rural development. Deductions under section 80GGB and 80GGC can be claimed if donation is made to any political party.
Section 80GG: Tax deduction for rent paid for FY18
You can claim a tax deduction under section 80GG for the rent paid for house. However, you can claim deduction under this section only incase when you have not received house rent allowance. If you are receiving HRA then you are not entitled for deduction under this section. You can claim deduction under section 80GG when the rent paid by you is more than 10% of your total income subject to maximum of Rs. 5000 per month or 25% of total income whichever is less.
Income tax exemption
As per chapter III of Income Tax act, 1961, there exists a provision of income tax exemption. There are few types of specified incomes on which you can get an exemption from paying tax. this means at the time of calculating income tax certain incomes will not be added. The most common incomes that are exempted from income tax are listed below:
House rent allowance - HRA tax exemption
Salaried individuals receive house rent allowance (HRA) from their employer. An exemption against HRA under Chapter 10 of Income Tax Act is possible if the employee is living in a rented accommodation and pays rent to the owner. The HRA exemption can also be claimed by submitting proof of rent paid to the employer or at the time of filing ITR. The taxpayer just needs to find out how much exemption he can avail and then recalculate the total taxable income after adjusting the exemption.
HRA exemption is subject to the employee actually staying on rent. The amount of HTA exemption is the lower of:
· HRA received from employer
· Actual rent paid less 10% of basic monthly salary
· 40% of basic salary for those staying in any place except the metros cities of Delhi, Mumbai, Kolkata and Chennai. In case of people staying in these four cities, exemption can be upto 50% of basic salary
Download Automated Income Tax House Rent Exemption Calculator U/s 10(13A)
Leave Travel Assistance - LTA tax exemption
Leave travel assistance (LTA) received from the employer towards cost of domestic travel to hometown or for vacation once in two years by rail or by air for self and family members can be claimed as exempt income.
This deduction can only be claimed by a person from the employer directly. LTA is allowed to claim twice in the block of four years. The current block is 2014-2018. However, employees are now allowed to carry one unclaimed LTA to next year as well
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