Income Tax Deductions

Being one of the most significant and regular taxpayers in India, we often look for opportunities to save money. Salaried employees tend to save money on tax by investing in plans that offer tax benefits. Due to the facility of claiming deductions and exemptions, one can significantly reduce tax.

In the Union Budget 2020 announcement, the Finance Minister introduced the new tax regime to help people save money on tax. However, the new tax regime eliminates certain deductions and exemptions such as the deduction under Section 80C of the Income Tax Act. However, you can continue to claim these deductions in the old tax regime as the new tax structure is completely optional. 

Here, we will be discussing in detail the major income tax deductions and exemptions available to the salaried individuals under the old tax regime. 

What are Income Tax Deductions?

Income tax deductions help lower one’s taxable income and ultimately lower how much income tax an individual pays at the end of a fiscal year. Put simply, income tax deductions are tax-free expenses made during the year, which are then subtracted from one’s gross annual income at the time of filing tax returns

Your income or salary structure consists of several components which can help you save on taxes by way of deductions and exemptions. Some of these components may be fully or partially taxable, while some may be fully exempt from tax.

Taxable and non taxable income

Tax Exemptions vs Tax Deductions

Income Tax Deductions

Income Tax Exemptions

A particular amount, which is reduced from an individual’s total tax liability, is called an income tax deduction.

A particular income, which is exempt from tax and thus, not included in one’s total tax liability is called an income tax exemption.

Tax deductions are covered between the scope of Section 80C to 80U of the Income Tax Act

Tax exemptions are generally covered under Section 10 of the Income Tax Act.

To be eligible for tax deductions, you have to meet certain predetermined criteria.

Any taxpayer in the country can qualify for income tax exemptions

Some examples of Income Tax deductions are: investments made in Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF), and National Pension Scheme (NPS).

Some examples of Income Tax Exemptions are:
House Rent Allowance, Leave Travel Allowance, Entertainment Allowance, Long Term Capital Gains on Equity Funds.

Income Tax Deductions Under Section 80

ITA Section

Limit for Tax Deduction

Type of investment, expense or income

Eligible claimants

80C

Maximum Rs. 1.5 lakh (aggregate of 80C, 80CCC and 80CCD)

PPF (Public Provident Fund), EPF (Employee Provident Fund), ULIPs (Unit Linked Investment Plans) NPS (National Pension Scheme), ELSS (Equity Linked Saving Scheme), among others

Individuals, HUFs

80CCC

Maximum Rs. 1.5 lakh (aggregate of 80C, 80CCC and 80CCD)

Pension funds (annuity plan by a life insurance company), as defined under Section 10(23AAB)

Individuals

80CCD

80CCD1: Employee Contribution: Maximum Rs. 1.5 lakhs or deduction up to 10% of salary (for employees) or 20% of gross total income (if you are self-employed)

80CCD(1B): Self Contribution- Maximum Rs.50,000 for a deposit made to the NPS (National Pension Scheme) or your Atal Pension Yojana account

80CCD(2): Employer’s Contribution-

Additional deduction up to 10% of your salary

Pension fund initiated by central government

Individuals

80CCG

The deduction amount will be the lower of
  • 50% of investment in equity shares
  • Rs. 25,000 for 3 successive Assessment Years

Rajiv Gandhi Equity Saving Scheme (RGESS) - In the process of being phased out

Individuals with income less than Rs. 12 lakhs

80DD

Maximum Rs. 75,000 for those with 40%-80% disability, and Rs.1.25 lakh for severe disability (80% or more)

Medical Expenses on Rehabilitation of Handicapped Dependent Relative

Individuals and HUFs with a handicapped relative dependent on them.

80DDB

Maximum of Rs. 40,000 for individuals (under 60 years) and up to Rs. 1 lakh for senior citizens (above 60 years)

Expenses for medical treatment of specific diseases for self or relative.

Individuals and HUFs

80E

Lesser of the two:

  • 8 years from the year or beginning of loan repayment
  • Until the entire interest is paid off

Interest paid on Education loan taken for self, child or spouse

Individuals

80EE

Maximum Rs. 50,000

Deductions on Home Loan Interest for First Time Home Owners

Individuals

80G

Deductible up to 100% 0r 50%

Donations towards Social Causes

Individuals, HUF's, Companies, Firms

80GGB

100% of donations are eligible for deductions

Non-cash donations by a company to political parties registered under Section 29A of the Representation of People Act (REPA)

Indian companies

80GGC

Depends on quantum of donation

Non-cash donations by a person to political parties or electoral trusts.

Individuals

80GG

Rs. 5,000 per month, 25% of total income or rent minus 10% of adjusted gross total income, whichever is less

Deduction for House Rent Paid Where HRA is not Received

Individuals not receiving HRA

80RRB

Maximum Rs.3 lakhs

 

Income earned by way of royalty for a patent registered on or after 1st April, 2003 under the Patents Act 1970.

Resident Indian

80TTA

Maximum Rs. 10,000

Interest earned on a savings account (bank, co-operative society, or post office)

Individuals and HUFs

80TTB

Maximum Rs. 50,000 can be claimed

On income from deposits.

Senior Citizens (above 60 years)

80U

Rs.75,000 for severe disabilities (including blindness and mental retardation) up to Rs. 1 lakh

Medical expenses (nursing, training, rehabilitation,

specified caretaking scheme)

Individuals with disabilities.

Detailed Income Tax Deduction - Benefit

A taxpayer can apply a variety of deductions on their total income to decrease their taxable income and consequently, their tax payment. Let us look at some of the key deductions that a taxpayer can claim under Section 80C.

 

1. Section 80C (Deduction on Investments)

Under Section 80C, individuals and HUFs, alike, can reduce their tax outgo by Rs. 1.5 lakhs. To avail the Section 80C deduction, you can invest in a variety of instruments, including but not limited to ELSS (Equity Linked Savings Schemes, PPF (Public Provident Fund), EPF (Employee Provident Fund), ULIPs (Unit Linked Investment Plans) and NPS (National Pension Scheme).

You can also explore our blog on 5 things to know about section 80C while filing ITR.

 

2. Section 80CCC – (Deduction for Premium Paid for Annuity Plan of LIC or Other Insurer)

This section provides a deduction for an amount paid by an individual towards an annuity plan by a life insurance company. However, the payment has to be to a fund mentioned in Section 10(23AAB). Proceeds from the policy in the form of pension from annuity or surrender of annuity are taxed. Interest and bonus received on the same are also taxed.

 

3. Section 80CCD (Deduction for Contribution to Pension Account)

  • Section 80CCD(1)- Employee Contribution

Tax deductions can be availed on amounts deposited in pension accounts. The maximum deduction that you can claim will be the lesser of 10% of salary (if you are an employee) or 20% of gross total income (if you are self-employed) or Rs. 1.5 lakhs.

  • Section 80CCD(1B) - Self Contribution

This new section has been introduced to provide an added deduction of upto Rs. 50,000 for a deposit made to the NPS (National Pension Scheme) or your Atal Pension Yojana account.

  • Section 80CCD(2) - Employer’s Contribution

You can claim an additional deduction on your employer’s contribution to your pension account for up to 10% of salary. There is no monetary deduction limit applicable.

 

4. Section 80D (Deduction on premium paid for Medical Insurance)

If you have taken out a health insurance policy for yourself, your husband/wife and dependent children, you can claim deductions of Rs. 25,000.

For parents under 60 years of age: An additional deduction upto Rs. 25,000 is available

For parents above 60 years of age: In Budget 2018, the deduction limit was raised to Rs. 50,000 (from the earlier Rs. 30,000)

For both taxpayers and parents aged above 60: The deduction limit is Rs.1 lakh.

An additional deduction on health insurance upto Rs. 5, 000 can be claimed on health check-ups of all family members (spouse, kids and parents).

 

5. Section 80DD (Deduction for Rehabilitation of Handicapped Dependent Relative)

If you are a resident individual or HUF, you can avail this on:

  1. Medical expenses including nursing, training and rehabilitation of handicapped relative dependent on you

  2. Amount paid to a specified scheme towards caretaking of handicapped relative dependent on you

Deductions:

  1. Rs. 75,000 for 40%-80% disability

  2. Rs. 1,25,000 for disability that is severe (80% or more)

You will need to procure a disability certificate from the concerned medical authority, for this deduction to be applicable.

 

6. Section 80DDB (Deduction for Medical Expenditure on Self or Dependent Relative)

  1. If you are an individual below the age of 60, you can claim a deduction of upto Rs. 40,000 upon expenses paid for treatment of specified medical conditions for yourself or your dependents. The deduction is also applicable for all members of the HUF below 60 years of age.

  1. Individuals or HUFs can claim a deduction upto Rs.1 lakh if the expenses are paid for a senior citizen.

Till FY 2017-18, the applicable deductions for a senior citizen was Rs. 60,000 and that for a super senior citizen was Rs. 80,000. Now, there is a common limit of Rs.1 lakh for both.

  1. Medical expenses paid for by an insurer or employer will be reduced before applying the deductions.

You should keep handy a prescription from your medical specialist to make this claim.

 

7. Section 80TTA (Deduction from Gross Total Income for Interest on Savings Bank Account)

Did you know that the interest you earn from a savings account can also be used to claim deductions? Individuals or HUFs can claim deductions of upto Rs. 10,000 on the interest earned from a savings account. This account could be maintained with a bank, co-operative society, or post office. Remember to list interest from savings bank accounts under other income.

Note that this section does not provide for deduction on interest from recurring deposits, fixed deposits, or corporate bonds.

 

8. Section 80GG (Deduction for House Rent Paid Where HRA is not Received)

If you, your spouse, or minor child do not own residential accommodation at your place of work, you can claim deduction on rent paid if HRA (House Rent Allowance is not paid for by your employer. However, you must not have self-occupied residential property in any other place, and must be living on rent and paying rent.

The maximum deduction you can claim will be the lesser of the following items:

  1. Rent minus 10% of adjusted gross total income

  2. Rs. 5,000 per month

  3. 25% of adjusted total income

Adjusted Gross Total Income is basically Gross Total Income adjusted for specific deductions, exemption, LTCG, and income related to NRIs and foreign companies.

 

9. Section 80E – (Deduction for Interest on Education Loan for Higher Studies)

If you have taken a higher education loan for yourself, your spouse, children, or legal ward, you can claim a deduction on interest paid for such a loan. There is no monetary upper limit on the deductions that can be claimed under this section. However the deduction can be claimed for the lesser of the two:

  1. 8 years from the year or beginning of loan repayment

  2. Until the entire interest is paid off

 

10. Section 80EE (Deductions on Home Loan Interest for First Time Home Owners)

A deduction of upto Rs. 50, 000 can be claimed on home loan interest if you are a first-time home buyer.

Introduced in FY 2013-14, this section offered a deduction of upto Rs. 1 lakh for FY 2013-14 and FY 2014-15. In FY 2016-17, it was reintroduced with a slashed maximum limit of deduction.

 

11. Section 80CCG - (Deductions on Rajiv Gandhi Equity Saving Scheme)

If you are a resident individual with a gross total income of less than Rs. 12 lakh, you can claim a deduction under this section subject to the following conditions

  • You are a new retail investor as per the notified scheme requirements.
  • The investment is in a listed investor as per notified scheme requirements.
  • The investment should be made in a scheme with a maximum lock-in period of 3 years from the date of acquisition as per notified scheme.

The deduction amount will be the lower of

  • 50% of investment in equity shares
  • Rs. 25,000 for 3 successive Assessment Years

Taxpayers should note that since 2017 onwards, this scheme is in the process of being phased out.

 

12. Section 80U (Deduction for Person suffering from Physical Disability)

If you are a resident individual and suffer from a physical disability, which includes blindness or mental retardation, you can claim a deduction up to Rs. 75,000. For severe disability, the deduction limit is raised to Rs. 1.25 lakhs.

Prior to FY 2015-16, these deduction limits were Rs. 50,000 and Rs. 1 lakh, respectively.

 

13. Section 80G – (Deduction for donations towards Social Causes)

The donations specified under this section are deductible upto 100% or 50%. In order to avail this deduction for FY 2017-18, you should ensure that any sums above Rs. 2,000 are made in modes other cash, since cash deductions of over Rs. 2,000 will not be eligible for deductions.

Here’s a handy list of the organisations you can donate to avail either 50 or 100% deductions:

 

a. Donations with 100% deduction with no qualifying limit

  • National Defence Fund by the Government of India
  • Prime Minister’s National Relief Fund
  • National Foundation for Communal Harmony
  • A nationally eminent, approved university or educational institution
  • Zila Saksharta Samiti formed under the chairmanship of district Collector
  • State Government fund for the medical expenses of the poor
  • National Illness Assistance Fund
  • National Blood Transfusion Council
  • Any State Blood Transfusion Council
  • National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities
  • National Sports Fund
  • National Cultural Fund
  • Fund for Technology Development and Application
  • National Children’s Fund
  • Chief Minister’s Relief Fund (for a state)
  • Lieutenant Governor’s Relief Fund (for a Union Territory)
  • Army Central Welfare Fund
  • Indian Naval Benevolent Fund
  • Air Force Central Welfare Fund
  • Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
  • The Maharashtra Chief Minister’s Relief Fund during October 1, 1993 and October 6,1993
  • Chief Minister’s Earthquake Relief Fund, Maharashtra
  • Any Gujarat State Government fund formulated exclusively for relief to the Gujarat earthquake victims
  • Any earthquake relief fund for the victims of Gujarat earthquake under Section 80G(5C). Contribution payment should be made from January 26, 2001 and September 30, 2001.
  • Prime Minister’s Armenia Earthquake Relief Fund
  • Africa (Public Contributions- India) Fund
  • Swachh Bharat Kosh (valid from FY 2014-15)
  • Clean Ganga Fund (valid from FY 2014-15)
  • National Fund for Control of Drug Abuse (valid from FY 2015-16)

b. Donations with 50% deduction with no qualifying limit

  • Jawaharlal Nehru Memorial Fund
  • Prime Minister’s Drought Relief Fund
  • Indira Gandhi Memorial Trust
  • The Rajiv Gandhi Foundation

c. Donations with 100% deduction subject to 10% of gross total income (adjusted)

  • Donations to be utilized for promotion of family planning by government, any approved local authority, association, or institution
  • Company donation to the Indian Olympic Association or any other notified Indian association or institution for development of sports infrastructure or sports and games sponsorship in India

d. Donations eligible for 50% deduction subject to 10% of gross total income (adjusted)

  • Any other fund or institution that fulfils conditions mentioned in Section 80G(5)
  • Government or any local authority to be used for charitable purposes other than the promotion of family planning
  • Any Indian authority constituted for housing accommodation or planning, improvement or development of cities, towns, villages or both
  • Any corporation mentioned in Section 10(26BB) that works towards the interests of minority communities
  • Repairs or renovation of any notified temple, mosque, gurudwara, church or other Places

 

14. Section 80GGB (Deduction on contributions given by companies to Political Parties)

Deduction can be claimed by an Indian company for contributions made via any mode other than cash to a political party registered under Section 29A of the Representation of People Act (REPA) or electoral trust. Companies can claim 100% of their contributions as deductions.

 

15. Section 80GGC (Deduction on contributions given by any person to Political Parties)

An individual can claim deduction on contribution made via any mode other than cash to a political party or electoral trust. Companies, artificial juridical persons or local authorities funded wholly or partly by the government are not eligible to avail this deduction.

 

16. Section 80RRB (Deduction with respect to any Income by way of Royalty of a Patent)

 

17. Section 80TTB (Deduction of Interest on Deposits for Senior Citizens)

This section was introduced in Budget 2018. Deductions up to Rs. 50,000 can be claimed by senior citizens on income from deposits.

Tax Exemptions

One sure-fire way to reduce tax liability is to be aware of income tax exemptions available under the Income Tax Act. Under Section 10, you can avail tax exemptions on allowance for your house rent, transport, and your child’s education.

  • House Rent Allowance: Exemptions received on HRA (House Rent Allowance) will be the minimum of:
    i) Total HRA received be one’s employer
    ii) 50% of income of individuals living in metro cities, or 40% for those living in non-metro cities; and
    iii) Rent less than 10% of income

  • Transport Allowance: Transport Allowances of Rs. 19,200 per annum and Rs. 1,600 per month can be exempt from taxation.

  • Child Education Allowance: Exemptions on Child Education Allowance of maximum Rs. 100 per month for up to 2 children only can be availed by employees.

  • Hostel Subsidy: Subsidies on hostels are also tax-exempt up to Rs. 300 per month for a maximum of 2 children.

  • Interest Paid on Housing Loans: One can avail income tax exemption of Rs. 2 lakh on interest paid on home loans, provided the house is currently occupied by the owner or is set to finish construction within 3 years.

Some additional allowances that might also qualify for income tax exemptions are High Active Field Area Allowance, Special Compensatory Allowance, Tribal Allowance, High Altitude Allowance, among others. 

FAQs on Income Tax Deductions

  • ✔️Can I claim the 80C deductions at the time of filing return in case I have not submitted proof to my employer?

    Employers take into account the proof of investments submitted by employees to compute their taxable income. It is advisable to submit the proof on time, but if you fail to submit, you can always make the deduction claim at the time of filing the tax return. To claim deductions during filing of the return, the investment should have been made during the relevant financial year.

  • ✔️I have made an 80C investment on 30 April 2018. For which year can I claim this investment as a deduction?

    All the deductions available under Section 80C are valid only in the year the investments are made in. If you have made the investment on April 30 2018, you will be eligible to claim the deduction in the financial year 2018-19.

  • ✔️I have availed a loan from my employer for pursuing higher education. Can I claim the interest paid on such a loan as a deduction under Section 80E?

    A deduction can be claimed for interest on a loan for higher studies under Section 80E. However, the deduction is available only if the loan has been provided by a financial institution. Interest on the loan granted by your employer will not qualify for a tax deduction under the law.

  • ✔️Is there any restriction or maximum limit up to which I can claim a deduction under Section 80E?

    Interest paid during the year for education loan is eligible for tax deduction under Section 80E. However, the section doesn’t specify any limit for the deduction. The actual interest paid can be claimed as a deduction under the section. Law has not prescribed any upper limit for making a claim of deduction under Section 80E. Hence, the actual interest paid during a year can be claimed as a deduction.

  • ✔️Can a company or a firm take the benefit of Section 80C?

    A company cannot claim tax benefits under Section 80C as its provisions apply only to individuals and Hindu Undivided Family (HUF).

  • ✔️Can a company claim a deduction for donations made under Section 80G?

    Donations to specific institutions, funds, etc. qualify for tax deduction under Section 80G and every taxpayer entity, including companies, are eligible for the tax benefit.

  • ✔️Are the tax exemptions available under section 80D available to corporates?

    The premiums paid for medical insurance are tax-exempt under Section 80D of the tax laws. The tax benefit is available only to individuals and Hindu Undivided Family, but not to corporate entities. The section also mandates payment through DD, cheque or electronic means to claim tax benefits. Cash payments are not eligible for tax deduction under Section 80D.

  • ✔️What are the tax exemptions available under section 80DD?

    Section 80DD allows a tax deduction of up to Rs. 50,000 for the treatment cost of a dependent handicap. The deduction limit can be extended to Rs. 1 lakh depending on the severity of the disability.

  • ✔️Are recurring deposits in bank eligible for the deduction?

    Section 80C is very specific about the investments eligible for deduction and recurring deposit does not qualify for a deduction. To claim deduction under the section, you will have to invest in specific tax-saving instruments. For instance, a five-year bank fixed deposit will be eligible for deduction but a recurring deposit even for five years will not qualify for a deduction.

  • ✔️Are all allowances taxable for salaried individuals?

    The nature of the allowance determines if it is taxable or not. Allowances like Hostel Expenditure Allowance, Children Education Allowance, Leave Travel Allowance and House Rent Allowance, which are often part of the salary are partially tax-exempt. On the flipside, allowances such as City Compensatory Allowance, Special Allowance, and Overtime Allowance are taxable in the hands of the employee.

  • ✔️Can both the earning members of a family claim deduction for home loan taken in a joint name?

    Yes, both the earning members of a family can individually claim maximum tax benefits for home loan taken in joint names. The interest on a home loan is eligible for a tax deduction of up to Rs. 2 lakhs in a year under Section 24B of the Income Tax Act. Additionally, the principal repayment qualifies for a deduction of up to Rs. 1.5 lakhs under Section 80C.

  • ✔️Can self-employed individuals claim the HRA benefit?

    No, the HRA benefit is only limited to salaried people, but self-employed people can avail deduction for house rent under Section 80GG of the income tax law.

  • ✔️How can I save tax on an education loan?

    An individual can easily get tax benefits for education loans taken for self, spouse or children. Under Section 80E of the income tax law, a tax deduction can be claimed for the interest paid on an education loan.

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