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Income Tax Exemption

Deduction Under Section 80C, 80D

Last Updated 19th Sep 2020

Income Tax Deductions Income Tax Exemptions
Income tax deductions are a specified amount of certain expenses incurred by the taxpayer during the financial year that can be subtracted from their gross income to calculate the tax liability. Income tax exemptions are specific income that is not included for calculating the tax liability for paying Income taxes.
Income tax deductions are specified under Section 80C to 80U of the Income Tax Act Section 10 of the Income Tax Act defines the provisions of Income Tax Exemptions.
The limits for Income Tax  Deductions are defined. For instance, Income tax deduction limit under section 80C is set to ₹ 1.50 Lakh. There are no deduction limits and Income Tax Exemptions are not subtracted from gross income.
  • A standard deduction of ₹ 50,000 is available for all salaried individuals under the Income Tax Act, 1961.
  • Income tax deduction limit under section 80C is set to ₹ 1.50 Lakh.
INCOME TAX CALCULATOR

Income Tax Deduction

Tax deduction is a reduction in tax obligation from your gross taxable income. Tax deductions are deducted from taxable income which is also known as adjusted gross income. Tax deduction varies in amount as different incomes are treated differently under various sections of income tax act. For the current year, an additional deduction of ₹ 1.50 Lakh for interest on home loan is provided for the purchase of affordable houses of upto ₹ 45 Lakh till March 2020.

Income Tax Deductions under Section 80C to 80U

Section Permissible limit Type of investment, expense or income Eligible claimants
80C Maximum ₹ 1,50,000 (aggregate of 80C, 80CCC and 80CCD) PPF, EPF, Bank FD's, NSC, LIC premium, tuition fees Individuals, HUFs
80CCC Maximum ₹ 1,50,000 (aggregate of 80C, 80CCC and 80CCD) Pension funds Individuals
80CCD Maximum ₹ 1,50,000 (aggregate of 80C, 80CCC and 80CCD) Pension fund initiated by central government Individuals
80TTA Up to ₹ 10,000 per year Interest on bank savings account Individuals and HUFs
80CCG 50% of amount invested subject maximum of ₹ 25,000 Equity saving schemes Individuals
80CCF Up to ₹ 20,000 Long term infrastructure bonds Individuals and HUFs
80D For individual taxpayers- Premium up to ₹ 25,000 in case of individuals and up to ₹ 50,000 for senior citizens
For HUFs- Premium up to ₹ 25,000 and up to ₹ 50,000 in case the member insured is a senior citizen or super senior citizen
Medical insurance premium and Health check up Individuals and HUFs
80E No limit defined Interest on repayment of Education loan Individuals
80EE Maximum ₹ 50,000 Interest on loan payable for acquiring a residential house property Individuals
80G Differs with the amount of donation General donations of any recognized society Individuals, HUF's, Companies, Firms
80GGA Depends on quantum of donation Donations to Scientific Research or Rural development Those who do not have income from business or profession
80GGB Depends on quantum of donation Donations to political parties Indian companies
80GG ₹ 5,000 per month or 25% of total income whichever is less Rent paid if HRA is not received Individuals not receiving HRA

List of Income Tax deductions for FY 2019-20, AY 2020-21

Section 80C

Income tax section 80C replaced section 88 and became effective on 1st April, 2006. This section provides provisions on the number of payments. The eligible taxpayers can claim deductions of maximum amount up to ₹ 1.50 Lakh per year. Both individuals and HUFs are eligible for income tax deductions under 80C.

This section includes the following investments and expenses:

  • Investment in PPF: You can claim a deduction for investment made in PPF account. You can invest a maximum of ₹ 1.50 Lakh in a year. Receipts on maturity and withdrawal are tax free.
  • Investment in National savings certificate: National Savings Certificate is eligible for deductions in the year they are purchased. Interest accrued on such certificates is eligible for tax deductions each year under section 80C, but becomes taxable at the time of maturity.
  • Investment in Fixed Deposit: Interest earned on fixed deposits with tenure of not less than five years are eligible for tax deduction under section 80C. For senior citizens, tax exempted interest income on deposits with banks has been increased from ₹ 10,000 to ₹ 50,000. Further, TDS will not be required to be deducted under section 194A and it has been extended to all FD and RD schemes
  • Premium on Life Insurance Policy: You can claim a deduction under section 80C for the premium paid for a life insurance policy as per the income tax act.
  • Contribution to Employee Provident Fund: You can claim a tax deduction for the contribution made in employee provident fund under section 80C. Government to contribute 12% of EPF contribution for new employees (with less than 3 years of employment) in all sectors. New women employees (with less than 3 years of employment) contribute only 8% of salary as EPF contribution as opposed to 12% earlier.
  • Equity oriented Mutual Funds: You can claim a tax deduction for investment made in any unit of mutual funds whether it is listed on stock exchange or not.
  • Repayment of Principal on Housing Loan: you can claim a tax deduction on the principal amount paid for Home loan under section 80C.
  • Tuition Fees: You can claim a tax deduction for the tuition fees paid under section 80C. The deduction is available for 2 children for each individual. Thus, deduction for up to 4 children can be claimed, 2 by each parent.

Tax deductions under Section 80CCC and 80CCD for contribution to pension funds

You can claim a tax deduction under Section 80CCC and 80CCD for the contribution made to Pension Funds. If you have contributed any amount in any insurance scheme to receive pension, then you can claim a tax deduction under 80CCC. However, if you have contributed to any pension scheme initiated by the central government, up to 10% of your salary such as the National Pension Scheme, then you can claim a tax deduction under section 80CCD.
Note: As per Income Tax Act, the maximum limit of ₹ 1.50 Lakh is an aggregate of deduction that may be claimed under section 80C, 80CCC and 80CCD. However, an exclusive tax benefit is available for NPS subscribers under section 80CCD. As per income tax act, Tier 1 account holders get an additional deduction for investment up to ₹ 50,000 in NPS. This deduction is over and above the deduction of ₹ 1.50 Lakh available under section 80C of IT Act, 1961.

Section 80TTA: Deductions for interest on savings account

You can claim a tax deduction under section 80TTA for interest earned on bank savings account. The deduction is subject to a maximum amount of ₹ 10,000. However, the income earned will be first added under the head of Income from other sources first and after that the deduction can be claimed.

Section 80CCF: Deduction for investment made in long term infrastructure bonds

You can claim a tax deduction under section 80CCF for an investment made in long term infrastructure bonds notified by the government. You can claim a maximum deduction up to ₹ 20,000.

Section 80CCG: Deduction for investment made under an equity saving scheme

The deduction is also known as Rajiv Gandhi Equity Saving Scheme. You can claim a tax deduction for an investment made in listed shares or mutual funds. However, the maximum deduction allowed is ₹ 25,000.

80D Income Tax Deduction

Under Section 80D, there can be 5 different scenarios for claiming the deduction; they are:

  • When the individual and parents both are above 60 years, the deduction available is ₹ 25,000 each, i.e., a total of ₹ 50,000.
  • When the individual, family, and parents all are above 60 years, then the deduction available is of ₹ 50,000 each, i.e., a total of ₹ 1 Lakh.
  • When the individual and family are below 60, but the parents are above 60 years of age, then the available deduction is ₹ 25,000 for self and family, plus ₹ 50,000 for parents. So, the total deduction is ₹ 75,000.
  • For members of HUF, the total deduction available is ₹ 25,000 each (self and family plus parents), i.e., a total of ₹ 50,000.
  • For non-resident individuals also the available deduction is ₹ 25,000 each, i.e., a total of ₹ 50,000.

Tax deduction under section 80D for payment of medical insurance premium and health check up

You can claim a tax deduction under this section for the payment of medical insurance premium for self, spouse or any child. In addition, any amount paid for health check up can also be claimed for tax deduction which shall not exceed to ₹ 5,000.

Section 80E: Income tax deduction for interest on Education Loan

You can claim a tax deduction under section 80E for interest paid on repayment of Education loan. The deduction can only be claimed on the interest paid on repayment of loan and not on the principal amount.

Section 80EE: Deduction for interest payable on loan taken for acquisition of a residential house property

You can claim a tax deduction under section 80EE for an interest payable for loan taken for acquisition of a residential house property. The maximum deduction claimed is ₹ 50,000.

Tax deduction under section 80G, 80GGA, 80GGB and 80GGC for donations

You can claim a tax deduction under section 80G for a general donation made during a financial year. Deductions under section 80GGA can be claimed if donation is made for Scientific Research or Rural development. Deductions under section 80GGB and 80GGC can be claimed if donation is made to any political party.

Section 80GG: Tax deduction for rent paid for FY18

You can claim a tax deduction under section 80GG for the house rent paid. However, you can claim deduction under this section only in case you have not received house rent allowance. If you are receiving HRA then you are not entitled for deduction under this section. You can claim deduction under section 80GG when the rent paid by you is more than 10% of your total income subject to maximum of ₹ 5,000 per month or 25% of total income whichever is less.

Income Tax Exemption

As per chapter III of Income Tax act, 1961, there exists a provision of income tax exemption. There are few types of specified incomes on which you can get an exemption from paying tax. this means at the time of calculating income tax certain incomes will not be added. The most common incomes that are exempted from income tax are listed below:

House Rent Allowance - HRA tax exemption

Salaried individuals receive house rent allowance (HRA) from their employer. An exemption against HRA under Chapter 10 of Income Tax Act is possible if the employee is living in a rented accommodation and pays rent to the owner. The HRA exemption can also be claimed by submitting proof of rent paid to the employer or at the time of filing ITR. The taxpayer just needs to find out how much exemption he can avail and then recalculate the total taxable income after adjusting the exemption.

HRA exemption is subject to the employee actually staying on rent. HRA exemption limit is the lower of:

  • HRA received from employer
  • Actual rent paid less 10% of basic monthly salary
  • 40% of basic salary for those staying in any place except the metros cities of Delhi, Mumbai, Kolkata and Chennai. In case of people staying in these four cities, exemption can be upto 50% of basic salary

Leave Travel Assistance - LTA tax exemption

Leave travel assistance (LTA) received from the employer towards the cost of domestic travel to hometown or for vacation once in two years by rail or by air for self and family members can be claimed as exempt income.

This deduction can only be claimed by a person from the employer directly. LTA is allowed to claim twice in the block of four years. The current block is 2018-21. However, employees are now allowed to carry one unclaimed LTA to next year as well

Budget 2020 Tax Highlights

Main highlights from the budget presented by Hon'ble Finance Minister Ms. Nirmala Sitharaman on 1st Feb 2020.

  • Option to the taxpayer choose between old income tax rate and slabs and the new ones.
  • New tax slabs offer reduction in applicable tax rate from 20% to 10% and from 30% to 20% in some cases.
  • In case the taxpayer opts for new slabs and rates, no exemption or deduction can be claimed such as those on account of house rent allowance (HRA) investments, LIC premium, school fees, mediclaim etc.
  • Dividend Distribution Tax has been withdrawn, and dividend income shall be taxable in the hands of the recipient.
  • The Insurance coverage of deposit in a bank has been increased from ₹ 1 Lakh to ₹ 5 Lakh.
  • The home loan interest exemption limit of ₹ 1.50 Lakh for home loans sanctioned on and before 31st March 2020 have been extended by 1 year to 31st March 2021.

FAQs

What is the standard deduction for salaried individuals in Income Tax?

As per the Income Tax Act, the standard deduction available for salaried individuals is ₹ 50,000.

What is the maximum limit of 80D?

Under Section 80D, you can avail up to ₹ 25,000 for mediclaim premium paid for yourself, spouse, and children, while the limit is of ₹ 50,000 for your parents if they are senior citizens. Also, unless you, your family (excluding parents) are all above 60 years, you cannot claim more than ₹ 25,000.
The limit of deduction for expenses on medicine is upto ₹ 5,000.

What all comes under 80D?

Under Section 80D, the premium on mediclaim policy and healthcare expenses is covered.

What deductions are allowed for income tax?

Under the Income Tax Act 1961, there are various provisions and sections that cover the income and expenses of different kinds that are to be deducted while calculating income tax. The Act consists of an exhaustive list of various expenses and investments, along with its limits and scenarios in which they will be applicable.

How is the standard deduction calculated?

The standard deduction is not subject to any calculation. It is to be deducted flat from the basic salary at the time of calculating taxable income.

How do I become tax exempt?

The annual income upto ₹ 2.50 Lakh is exempt from tax. Also, there is a tax rebate of upto ₹ 12,500, which effectively makes for zero tax for when your taxable income is upto ₹ 5 Lakh. Thus, you can use various deductions and exemptions available and applicable to you for lowering your taxable income to become tax-exempt.


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