Learn how to maximise your tax savings in India with key income tax deductions and exemptions. Simplified tips for salaried individuals and taxpayers.
Paying income tax is a duty for every earning citizen of India, but that doesn’t mean you can’t optimise your tax liability. The Indian Income Tax Act provides several legal ways to reduce the amount of tax you pay through deductions and exemptions. Understanding these options can help salaried individuals, freelancers, and business owners save a substantial sum every year.
Learn more about income tax deductions and exemptions in India, helping you make smarter financial choices and maximise your tax savings.
Income Tax Deductions reduce your total taxable income. For instance, if your annual income is ₹10 Lakhs and you claim deductions worth ₹1.5 Lakh under Section 80C, you’ll only be taxed on ₹8.5 Lakhs.
Income Tax Exemptions, on the other hand, are income components that are entirely excluded from tax calculations. House Rent Allowance (HRA), Leave Travel Allowance (LTA), and agricultural income are some common examples.
Both deductions and exemptions are valuable ways to bring down your taxes while complying with Indian tax laws.
The following deductions are available under the old tax regime:
1. Section 80C – Up to ₹1.5 Lakh
Investments and payments eligible for deduction include:
Employee Provident Fund (EPF)
Public Provident Fund (PPF)
National Savings Certificates (NSC)
Equity-Linked Savings Scheme (ELSS)
Life insurance premiums
Tuition fees for children
Principal repayment on home loans
2. Section 80D – Health Insurance Premiums
Deductions for premiums paid:
Up to ₹25,000 for self, spouse, and children
Additional ₹25,000 for parents (below 60 years)
₹50,000 if parents are senior citizens
3. Section 80E – Education Loan Interest
Interest on loans for higher education is fully deductible for up to 8 years.
4. Section 24(b) – Home Loan Interest
Deduction of up to ₹2 Lakhs on interest paid for self-occupied property.
5. Section 80G – Donations to Charities
Donations to specified funds and charitable institutions are eligible for deductions of 50% or 100%, with or without restriction, depending on the institution.
6. Section 80TTA/80TTB – Interest on Savings Accounts
Section 80TTA: Deduction up to ₹10,000 on savings account interest for individuals below 60 years.
Section 80TTB: Deduction up to ₹50,000 for senior citizens on interest from savings and fixed deposits.
1. House Rent Allowance (HRA)
Exemption on HRA received, subject to certain conditions related to salary, rent paid, and city of residence.
2. Leave Travel Allowance (LTA)
LTA covers travel expenses for domestic holidays. It is exempt from tax twice in a block of four calendar years. This only covers travel, not accommodation or food.
2. Gratuity
Gratuity received by employees upon retirement is tax-exempt up to ₹20 Lakhs for those covered under the Payment of Gratuity Act.
3. Standard Deduction
For salaried and pensioned individuals, a standard deduction of ₹50,000 is allowed automatically, without needing to submit bills or proof.
4. Agricultural Income
Agricultural income in India is fully exempt from tax, although it may be considered for rate calculation when you have non-agricultural income.
From FY 2020-21 onwards, taxpayers can choose between the old regime (which allows deductions and exemptions) and the new regime (which offers lower tax rates but no major deductions).
Feature |
Old Tax Regime |
New Tax Regime |
Standard Deduction |
₹50,000 |
₹75,000 |
Section 80C |
₹1,50,000 |
Not Available |
HRA, LTA, Other Exemptions |
Available |
Not Available |
Tax Slabs |
Higher Rates |
Lower Rates |
Tip: If you claim multiple deductions, the old regime is better. Otherwise, opt for the new tax regime.
Start Early: Don’t wait till the end of the financial year to invest. Distribute investments monthly.
Use Salary Break-ups: Utilise HRA, LTA, and food coupons if your employer provides them.
Review Investments: Choose tax-saving tools that match your goals—ELSS for market-linked growth, PPF for safe investments, etc.
- Maintain Records: Keep bills and receipts ready for deductions like tuition fees, medical expenses, and rent.
Salaried Employees: Can claim HRA, standard deduction, 80C, and medical insurance benefits.
Freelancers and Professionals: Can claim expenses as business deductions plus benefits under 80C, 80D, etc.
Senior Citizens: Enjoy higher deduction limits on health insurance and no TDS up to ₹50,000 on interest income.
Deductions are subtracted from your taxable income.
Exemptions are income components that are not taxable at all.
You cannot claim most deductions if you choose the new tax regime.
Always verify the latest limits and rules on the Income Tax Department website or reliable portals.
Tax planning is crucial for reducing taxable income and maximising savings. By understanding the income tax exemption list and available income tax deductions, you can optimise your tax outgo and boost your financial health.
Assess your eligibility for various exemptions and deductions
Submit proofs like rent receipts, insurance premiums, and investment details
Choose the right tax regime based on your financial situation
For expert tax planning, consult a professional and ensure compliance with the latest tax rules.
FAQs
Can I claim the 80C deductions at the time of filing the income tax return in case I have not submitted proof to my employer?
Employers consider 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 do so, you can always make the tax deduction claim at the time of filing the tax return. To claim tax deductions while filing your income tax return, the investment should have been made during the relevant financial year.
I have availed a loan from my employer for pursuing higher education. Can I claim the interest paid on such a loan as a tax deduction under Section 80E?
Tax deduction can be claimed for interest paid 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 tax deduction under Section 80E?
Interest paid on an education loan is eligible for tax deduction under Section 80E. However, the section doesn’t specify any limit for the tax deduction. As such, the actual interest paid can be claimed as a tax deduction.
Can a company or firm reap the benefits of Section 80C?
A company/firm cannot claim tax benefits under Section 80C as its provisions apply only to individuals and Hindu Undivided Families (HUF).
Can a company claim a deduction for donations made under Section 80G?
Donations to specific institutions, funds, etc., qualify for a tax deduction under Section 80G and every taxpaying entity, including companies, are eligible to claim 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 Income Tax Act. The tax benefit is available only to individuals and Hindu Undivided Families (HUF), but not to corporate entities. The section also mandates payment through demand draft (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 for a tax deduction of up to ₹50,000 for the treatment cost of a handicapped dependent. The deduction limit can be extended to ₹1 lakh depending on the severity of the disability.
Are bank recurring deposits eligible for tax deduction?
Section 80C is very specific about the investments eligible for tax deduction and recurring deposits do not qualify for the same. To claim a tax deduction under this section, you will have to invest in specific tax-saving instruments. For instance, a five-year, tax-saver bank fixed deposit will be eligible for tax deduction, but a recurring deposit will not.
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’s Education Allowance, Leave Travel Allowance (LTA), and House Rent Allowance (HRA), which are often part of the salary break-up, 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 earning members of a family claim tax deduction for a home loan taken as co-applicants?
Yes, both earning members of a family can individually claim maximum tax benefits for home loans taken jointly (as co-applicants). The interest on a home loan is eligible for a tax deduction of up to ₹2 lakh in a year under Section 24 of the Income Tax Act. Additionally, the principal repayment qualifies for a deduction of up to ₹1.5 lakh 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 a tax deduction for house rent under Section 80GG of the Income Tax Act.
How can I save tax on an education loan?
An individual can easily avail a tax deduction on education loans taken for self, spouse, or children. Under Section 80E of the Income Tax Act, a tax deduction can be claimed for the interest paid on an education loan.
What is the standard deduction limit?
As announced in the Budget 2024, w.e.f FY 2024-25, the standard deduction for salaried employees is proposed to be increased from ₹50,000/- to ₹75,000/-.
How much child education allowance can I claim?
You can claim ₹100 per month, i.e. ₹1,200 a year for a maximum of two children.
What are the examples of income tax exemptions?
House rent allowance (HRA), leave travel allowance (LTA), children’s education allowance, and exemptions under Section 24 are some of the examples of income tax exemptions.
What are the examples of income tax deductions?
Investments done under Section 80 of the Income Tax Act, 1961, in ELSS funds, principal repayment of home loan, Public Provident Fund (PPF), National Pension Scheme (NPS), etc. are some of the examples of income tax deductions.
What is the income tax deduction limit under Section 80C?
You can claim a deduction of up to ₹1.5 Lakh under Section 80C.
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