Tax deductions help you save your tax liabilities. Deductions can be claimed on certain expenses like investments made in government schemes, fees for education, charitable contributions, insurance schemes, retirement plans, etc. The government of India has provided such deductions to inculcate the habit of saving and investing in the individual and institutional taxpayers. Most of these tax-saving provisions are covered from section 80C to section 80U of the Income Tax Act 1961.
Individuals can claim tax deduction benefits for payments made towards life insurance policies, fixed deposits, superannuation/provident funds, tuition fees, and construction/purchase of residential properties under Section 80C of the Income Tax Act. Taxes are an integral component in our country, with the accounting for a major portion of the income earned by the government, income which is utilized to provide certain basic provisions to citizens. Individuals who earn more than a certain amount are expected to pay taxes, as per the existing tax slabs. While these taxes can be harsh on the bank balance of a taxpayer, the government also provides certain provisions wherein one can save tax. Tax deductions can help one reduce the taxable income, lowering their overall tax liability and thereby helping them save on taxes. The deduction one is eligible for depends on a number of factors, with different limits set for different purposes.
What is a Tax Deduction?
Tax deduction helps in reducing your taxable income. It decreases your overall tax liabilities and helps you save tax. However, depending on the type of tax deduction you claim, the amount of deduction varies. You can claim a tax deduction for amounts spent in tuition fees, medical expenses, and charitable contributions. Also, you can invest in various schemes such as life insurance plans, retirement savings schemes, and national savings schemes, etc. to get tax deductions. The government of India offers tax exemptions for various expenses incurred in different activities to encourage individuals and commercial institutions to take part in activities having social benefits.
A number of day-to-day expenditures qualify for deductions, with information about them being crucial to helping us save money. The tax deduction can be claimed on money spent for education, medical expenses, charitable contributions, investments in insurance, retirement schemes, etc. These deductions have been put in place to encourage members of the society to participate in certain useful activities, helping everyone involved in the process
Deductions under Section 80C
Tax deductions under section 80C allow you to claim a deduction of maximum Rs 1.5 lakhs. This amount is a combination of deductions available under Section 80C, 80CCC, 80CCD(1). These deductions are available for individuals and Hindu Undivided Families. Investments eligible under this section 80C are
- Employee Provident Fund (EPF)
- Voluntary Provident Fund (VPF)
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- 5 Year Post Office Time Deposit
- 5 Year Tax Saving Bank Fix Deposit
- Equity Linked Saving Schemes (ELSS)
- Unit Linked Insurance Plans (ULIP)
- Senior Citizens Saving Schemes
- Sukanya Samridhhi Scheme
There are various deductions a taxpayer can claim from his total income which would bring down his taxable income and thereby reduce his tax outgo. Discussed in this article are some of the important deductions under Section 80C a taxpayer is eligible to claim.
1. Section 80C
Deductions on Investments
Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total income. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income through section 80C. This deduction is allowed to an Individual or a HUF. A maximum of Rs 1, 50,000 can be claimed for the FY 2018-19, 2017-18 and FY 2016-17 each.
If you have paid excess taxes, but have invested in LIC, PPF, Mediclaim, incurred towards tuition fees etc.and have missed claiming a deduction of the same under 80C, you can file your Income Tax Return, claim these deductions and get a refund of excess taxes paid
2. Section 80CCC – Insurance Premium
Deduction for Premium Paid for Annuity Plan of LIC or Other Insurer
This section provides a deduction to an individual for any amount paid or deposited in any annuity plan of LIC or any other insurer. The plan must be for receiving a pension from a fund referred to in Section 10(23AAB). Pension received from the annuity or amount received upon surrender of the annuity, including interest or bonus accrued on the annuity, is taxable in the year of receipt.
3. Section 80CCD – Pension Contribution
Deduction for Contribution to Pension Account
a. Employee’s contribution – Section 80CCD (1) is allowed to an individual who makes deposits to his/her pension account. Maximum deduction allowed is 10% of salary (in case the taxpayer is an employee) or 20% of gross total income (in case the taxpayer being self-employed) or Rs 1, 50,000, whichever is less.FY 2016-17 and earlier years – In the case of a self-employed individual, maximum deduction allowed is 10% of gross total income.
b.Deduction for self-contribution to NPS – section 80CCD (1B) A new section 80CCD (1B) has been introduced for an additional deduction of up to Rs 50,000 for the amount deposited by a taxpayer to their NPS account. Contributions to Atal Pension Yojana are also eligible.c. Employer’s contribution to NPS – Section 80CCD (2) Additional deduction is allowed for the employer’s contribution to employee’s pension account of up to 10% of the salary of the employee. There is no monetary ceiling on this deduction.
4. Section 80 TTA – Interest on Savings Account
Deduction from Gross Total Income for Interest on Savings Bank Account
A deduction of maximum Rs 10,000 can be claimed against interest income from a savings bank account. Interest from a savings bank account should be first included in other income and deduction can be claimed of the total interest earned or Rs 10,000, whichever is less. This deduction is allowed to an individual or a HUF. It can be claimed for interest on deposits in savings account with a bank, co-operative society, or post office. Section 80TTA deduction is not available on the interest income from fixed deposits, recurring deposits, or interest income from corporate bonds.
5. Section 80GG – House Rent Paid
Deduction for House Rent Paid Where HRA is not Received
a. This deduction is available for rent paid when HRA is not received. The taxpayer, spouse or minor child should not own residential accommodation at the place of employment
b. The taxpayer should not have a self-occupied residential property in any other place
c. The taxpayer must be living on rent and paying rent
d. The deduction is available to all individuals
Deduction available is the least of the following:
a. Rent paid minus 10% of adjusted total income
b. Rs 5,000/- per month
c. 25% of adjusted total income*
*Adjusted Gross Total Income is arrived at after adjusting the Gross Total Income for certain deductions, exempt incomes, long-term capital gains and income relating to non-residents and foreign companies. An online e-filing software like that of ClearTax can be extremely easy as the limits are auto-calculated and you do not have to worry about making complex calculations. From FY 2016-17 available deduction has been raised to Rs 5,000 a month from Rs 2,000 per month.
6. Section 80E – Interest on Education Loan
Deduction for Interest on Education Loan for Higher Studies
A deduction is allowed to an individual for interest on the loan is taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian. The deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.
7. Section 80EE – Interest on Home Loan
Deductions on Home Loan Interest for First Time Home Owners
FY 2017-18 and FY 2016-17 This deduction is available in FY 2017-18 if the loan has been taken in FY 2016-17. The deduction under this section is available only to an individual who is a first-time home-owner. The value of the property purchased must be less than Rs 50 lakh and the home loan must be less than Rs 35 lakh. The loan must be taken from a financial institution and must have been sanctioned between 01 April 2016 to 31 March 2017. Through this section, an additional deduction of Rs 50,000 can be claimed on home loan interest. This is in addition to deduction of Rs 2,00,000 allowed under section 24 of the Income Tax Act for self-occupied house property.FY 2013-14 and FY 2014-15 This section provides a deduction on the home loan interest paid. The deduction under this section is available only to individuals for the first house purchased where the value of the house is Rs 40 lakh or less and the loan taken for the house is Rs 25 lakh or less. The loan must be sanctioned between 01 April 2013 to 31 March 2014. The aggregate deduction allowed under this section cannot exceed Rs 1,00,000 and is allowed for FY 2013-14 and FY 2014-15.
8. Section 80CCG – RGESS
Rajiv Gandhi Equity Saving Scheme (RGESS)
The deduction under this section is available to a resident individual. Investors whose gross total income is less than Rs. 12 lakhs. To avail the benefits under this section the following conditions should be met:
a. The assessee should be a new retail investor as per the requirement specified under the notified scheme.
b. The investment should be made in such listed investor as per the requirement specified under the notified scheme.
c. The minimum lock-in period in respect of such investment is three years from the date of acquisition in accordance with the notified scheme.
Upon fulfillment of the above conditions, a deduction, which is lower of the following is allowed.
- 50% of the amount invested in equity shares; or
- Rs 25,000 for three consecutive Assessment Years.
Rajiv Gandhi Equity Scheme has been discontinued starting from 1 April 2017. Therefore, no deduction under section 80CCG will be allowed from FY 2017-18. However, if you have invested in the RGESS scheme in FY 2016-17, then you can claim deduction under Section 80CCG until FY 2018-19.
9. Section 80D – Medical Insurance
Deduction for the premium paid for Medical Insurance
Deduction under this section is available to an individual or a HUF. A deduction of Rs. 25,000 can be claimed for insurance of self, spouse and dependent children. An additional deduction for insurance of parents is available to the extent of Rs 25,000 if they are less than 60 years of age or Rs 50,000 (has been increased in Budget 2018 from Rs 30,000) if parents are more than 60 years old. In case, a taxpayers age and parents age is 60 years or above, the maximum deduction available under this section is to the extent of Rs. 100,000.Example: Rohan’s age is 65 and his father’s age is 90. In this case, the maximum deduction Rohan can claim under section 80D is Rs. 100,000. From FY 2015-16 a cumulative additional deduction of Rs. 5,000 is allowed for a preventive health check-up to individuals.
10. Section 80DD – Disabled Dependent
Deduction for Rehabilitation of Handicapped Dependent Relative
This deduction is available to a resident individual or a HUF and is available on a. Expenditure incurred on medical treatment (including nursing), training and rehabilitation of handicapped dependent relative
b. Payment or deposit to specified scheme for maintenance of dependent handicapped relative.
i. Where disability is 40% or more but less than 80% – fixed deduction of Rs 75,000.
ii. Where there is a severe disability (disability is 80% or more) – fixed deduction of Rs 1,25,000.
To claim this deduction a certificate of disability is required from a prescribed medical authority. From FY 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000 and Rs 1,00,000 has been raised to Rs 1,25,000.
11. Section 80DDB – Medical Expenditure
Deduction for Medical Expenditure on Self or Dependent Relative
This deduction is available to a resident individual or a HUF. The deduction that can be claimed is Rs 40,000. Such deduction, for an individual, is available in respect of any expenses incurred towards the treatment of certain specified medical diseases or ailments for himself or any of his dependents. For a HUF, such deduction is available in respect of medical expenses incurred towards these prescribed ailments, for any of the members of the HUF.
In case the individual on behalf of whom such expenses are incurred is a senior citizen, a deduction up to Rs 1 lakh can be claimed by the individual or HUF taxpayer. Earlier i.e. until FY 2017-18, the deduction that could be claimed for a senior citizen and a super senior citizen was Rs 60,000 and Rs 80,000 respectively. This otherwise means, now it is a common deduction available up to Rs 1 lakh for all senior citizens (including super senior citizens) unlike earlier.
Any reimbursement of medical expenses by an insurer or employer shall be reduced from the quantum of deduction the taxpayer can claim under this section.
Also, remember that you need to get a prescription for such medical treatment from the concerned specialist in order to be able to claim such a deduction. Read our detailed article on Section 80DDB.
12. Section 80U – Physical Disability
Deduction for Person suffering from Physical Disability
A deduction of Rs. 75,000 is available to a resident individual who suffers from a physical disability (including blindness) or mental retardation. In case of severe disability, deduction of Rs. 1,25,000 can be claimed. From FY 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000 and Rs 1,00,000 has been raised to Rs 1,25,000.
13. Section 80G – Donations
Deduction for donations towards Social Causes
The various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction as provided in section 80G. From FY 2017-18 any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs 2000 should be made in any mode other than cash to qualify as deduction u/s 80G.
a. Donations with 100% deduction without any qualifying limit
- National Defence Fund set up by the Central Government
- Prime Minister’s National Relief Fund
- National Foundation for Communal Harmony
- An approved university/educational institution of National eminence
- Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district
- Fund set up by a State Government for the medical relief to the poor
- National Illness Assistance Fund
- National Blood Transfusion Council or to 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 or Lieutenant Governor’s Relief Fund with respect to any State or Union Territory
- The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the 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 fund set up by the State Government of Gujarat exclusively for providing relief to the victims of the earthquake in Gujarat
- Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the victims of the earthquake in Gujarat (contribution made during January 26, 2001, and September 30, 2001) or
- Prime Minister’s Armenia Earthquake Relief Fund
- Africa (Public Contributions — India) Fund
- Swachh Bharat Kosh (applicable from the financial year 2014-15)
- Clean Ganga Fund (applicable from the financial year 2014-15)
- National Fund for Control of Drug Abuse (applicable from the financial year 2015-16)
b. Donations with 50% deduction without any qualifying limit
- Jawaharlal Nehru Memorial Fund
- Prime Minister’s Drought Relief Fund
- Indira Gandhi Memorial Trust
- The Rajiv Gandhi Foundation
c. Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total income
- Government or any approved local authority, institution or association to be utilized for the purpose of promoting family planning
- Donation by a Company to the Indian Olympic Association or to any other notified association or institution established in India for the development of infrastructure for sports and games in India or the sponsorship of sports and games in India
d. Donations to the following are eligible for a 50% deduction subject to 10% of adjusted gross total income
- Any other fund or any institution which satisfies conditions mentioned in Section 80G(5)
- Government or any local authority to be utilized for any charitable purpose other than the purpose of promoting family planning
- Any authority constituted in India for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or both
- Any corporation referred in Section 10(26BB) for promoting the interest of minority community
- For repairs or renovation of any notified temple, mosque, gurudwara, church or other places.
14. Section 80GGB – Company Contribution
Deduction on contributions given by companies to Political Parties
The deduction is allowed to an Indian company for the amount contributed by it to any political party or an electoral trust. The deduction is allowed for contribution done by any way other than cash.
15. Section 80GGC – Contribution to Political Parties
Deduction on contributions given by any person to Political Parties
Deduction under this section is allowed to a taxpayer except for a company, local authority and an artificial juridical person wholly or partly funded by the government, for any amount contributed to any political party or an electoral trust. The deduction is allowed for contribution done by any way other than cash.
16. Section 80RRB – Royalty of a Patent
Deduction with respect to any Income by way of Royalty of a Patent
Deduction for any income by way of royalty for a patent registered on or after 01.04.2003 under the Patents Act 1970 shall be available up to Rs. 3 lakhs or the income received, whichever is less. The taxpayer must be an individual resident of India who is a patentee. The taxpayer must furnish a certificate in the prescribed form duly signed by the prescribed authority.
17. Section 80 TTB – Interest Income
Deduction of Interest on Deposits for Senior Citizens
A new section 80TTB has been inserted vide Budget 2018 wherein, a deduction in respect of interest income from deposits held by senior citizens will be allowed as a deduction from the total income The limit for this deduction is Rs. 50,000. Further, no deduction under section 80TTA shall be allowed. In addition to section 80 TTB, section 194A of the Act will also be amended so as to increase the threshold limit for deduction of tax at source on interest income payable to senior citizens from the existing limit Rs 10,000 to Rs. 50,000.