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Detailed Summary of Tax Saving Deductions in Income Tax

By Finserv MARKETS - Feb 20,2019
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Detailed Summary of Tax Saving Deductions in Income Tax

Recently, the government, led by our Prime Minister, Shri. Narendra Modi, announced a slew of changes in personal income tax rules. A full tax rebate has been announced for people who are earning a net taxable income of up to Rs. 5 lakh. However, even if you have a taxable income you need not worry. There are several provisions in the income tax laws which can save you from paying heavy taxes. Following is a detailed summary of the deductions you can avail to save taxes.

Deductions under Section 80C, Section 80CCC & Section 80 CCD (Investments, Life Insurance, Pension)

1. Section 80C – Deductions on Investments: 

In this section, individuals can claim deductions up to Rs. 1,50,000, this deduction is allowed for both individuals and HUFs.

2. Section 80CCC – Deductions on Insurance Premium for Annuity Plan: 

In this section an individual can claim a deduction for any amount paid/deposited in any annuity plan of LIC or any other insurer, the plan must be for receiving a pension fund referred under Income Tax Section 10(23ABB).  Pension received at the time of surrender of the annuity plan is taxable in the year of receipt.

3. Section 80 CCD – Deductions on Pension Contribution: 

i. Section 80 CCD (1): Employee’s contribution – A maximum deduction of 10% of salary (in case the tax payer is an employee) or 20% of salary(in case the tax payer is self-employed) is allowed to individuals who make deposits to their pension account.

ii. Section 80 CCD (1B): Deduction for self-contribution to NPS – This is a new section wherein individuals can claim an additional deduction of up to Rs. 50,00o for the amount deposited by taxpayers to the NPS account or contributed to Atal Pension Yojana.

iii. Section 80 CCD (2): Employer’s contribution to NPS – This is an additional deduction up to 10% of the salary of the employee which is allowed for employer’s contribution to employee’s pension account.

Deductions under Section 80D, Section 80DD, Section 80DDB (Health Related Expenses)

Buying Health Insurance not only helps cover healthcare costs but also helps you save taxes. The premium paid towards your personal or Family Health Insurance policy is eligible for tax deductions up to 25,000 under Section 80D. Additionally, if your family Health Insurance plan includes senior citizens, you will be eligible for an additional tax deduction of up to Rs. 30,000. Section 80DD offers deductions for medical treatment of handicapped dependents while Section 80DDB covers the cost of treatment for specific diseases.

Deductions under Section 24 (Home Loans)

The interest paid on Home Loans can be claimed as deductions under Section 24 of the Income Tax Act. In some cases, the maximum deduction allowed under this section is Rs 2,00,00 per year, while for others there may be no such limits.

Deductions under Section 80E (Education Loans)

The interest paid on Education Loans can be claimed as a tax deduction under Section 80E of the Income Tax Act. However, this deduction is only applicable on the interest amount and not on the principal.

Deductions under Section 80CCG (Rajiv Gandhi Equity Savings Scheme)

Rajiv Gandhi Equity Savings Scheme was introduced in Budget 2012. However, due to limited number of assesses availing this deduction, from 1st April 2017 this scheme is being phased out. Thus, new investors from financial year 2017-18 will not be eligible to avail this deduction. Only Individuals who have claimed deduction in financial year 2017-18 or earlier than that shall be allowed to a deduction there on if he/she is eligible for the same.

Deductions under Section 80G (Donations)

Any donations made for charity and philanthropic purposes can be claimed as a deduction under the Section 80D of the Income Tax Act. In some cases, up to 100% of the donation made can be claimed as tax deductions.

It is advised to not misuse these deductions and claim only the ones you are eligible for, or you may be penalized by the Income Tax department. Also, make sure to submit all the documents at the time of filing your Income Tax return. You are now all set to save a good amount of tax and make smarter investment decisions.

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