Understanding Tax Deductions

Medical emergencies are unpredictable events that can throw order and tranquillity into tumult, and hard-earned money into jeopardy. In order to effectively counter such exigencies, medical insurance can be your go-to solution. With proper planning using Section 80D, you can not only get the peace of mind of a medical insurance policy, but also the benefits of tax-savings!

Availing medical insurance and getting deductions under section 80D of the Income Tax Act is a smart move for every individual planning out their future finances. Following are some of the key features:

• Tax deductions can be availed on policies purchased for the taxpayer himself as well as policies purchased for his or her children, parent, or spouse.

• Section 80D deductions of up to ₹25,000 can be availed in a year, if the individual is below 60 years of age.

• Deductions of up to ₹50,000 are permitted for senior citizens (those above the age of 60).

• Tax deductions made under section 80D are over and above deductions made under Section 80C.
   

Though Section 80C offers a number of benefits, there’s more to tax saving than solely Section 80D of the Income Tax Act. Let’s explore some of the other sections in detail here.

80C is another popular choice for individuals looking to save hard-earned money. Under this provision, one can claim a deduction of a total amount of ₹1.5 Lakhs. To save money under 80C, one can invest in several schemes, such as the following:

• Tax-Saving Fixed Deposit investment: These investments have a lock-in period of 5 years.
• Investment in PPF (Public Provident Fund) and EPF (Employee Provident Fund): These are long-term investments created by the Indian Government to help individuals save for retirement.
• National Pension System Investment: This is a scheme to provide workers in the unorganised sector and working professionals with a retirement sum.
• Unit-Linked Insurance Plan Investment: This is a part insurance and part investment instrument. Part of the invested amount is put toward insurance coverage, while the rest goes into market-linked instruments i.e. equity, debt or a combination of both.
• Sukanya Samriddhi Yojana Investment: A popular scheme by the Government of India, the Sukanya Samriddhi Yojana is a savings scheme designed specifically for a girl child under the age of 10.

Now, you too can get tax benefits by opting for one of the above tax-saving instruments. One of the most popular instruments is ULIPs. However, ULIPs enjoy EEE (Exempt‑Exempt‑Exempt) status only if the annual premium does not exceed ₹2.5 Lakhs. ULIPs with premiums above this threshold are taxable as per capital gains provisions. This distinguishes them from other market‑linked instruments such as mutual funds, which are taxable under LTCG.

Under Section 80CCC, deductions of up to ₹1.5 Lakhs can be claimed. This deduction is applicable for policies that provide a pension or annuity. Policies purchased from an approved insurance company are eligible.

However, any pension or annuity received, including interest or bonus, is taxable at the time of receipt. If the policy is surrendered, the surrender value is also taxable.

Section 10 (23AAB) is intrinsically attached to 80CCC. It stipulates that the pension fund must have been set up before August 1996.

Section 80CCC is clubbed together with 80C and 80CCD(1), and the combined deduction across these sections cannot exceed ₹1.5 Lakhs.

For those planning to study further in their lives by taking out loans, Section 80E certainly makes life a lot easier by providing tax deductions that allow students to boost their careers without being overly-concerned with their finances. Such loans are easy to avail and because of the tax-benefits afforded by 80E, are not overly difficult to manage. Some of the salient features are as follows:

• An individual can claim tax deductions under Section 80E. The loan itself has to be taken for either themselves, their spouse, or children, with the express purpose of higher education.

• Loans taken from banks/financial institutions are eligible for income tax deductions.Loans taken from family or friends do not count.

• Loans taken for education over the senior secondary level or its equivalent are applicable for tax deduction. Further, it does not matter whether the educational institution is in India or abroad. Tax deductions are valid for both.

• Deduction applies only to the interest portion, not principal

• There is no monetary ceiling

• Deduction is available for a maximum of 8 consecutive years starting from the year repayment begins

Tax Deduction under Section 80GG is available for employees who do not have HRA (House Rent Allowance) provided to them by their employer. If the taxpayer themselves, their children, or spouse do not possess property at the place of employment, they are eligible to receive a tax deduction under Section 80GG. This deduction is available to all individuals, and is the least of one of the following:

• Rent paid minus 10% of the adjusted total income

• ₹5,000/month

• 25% of adjusted total income.
   

Conclusion: The Income Tax Act provides a host of provisions that can help you minimise your tax out-go. One popular way of doing that is investing in ULIPs on Bajaj Markets and availing handsome returns from the top-rated funds in the market, zero allocation charges and umpteen tax benefits.