Income Tax Deduction and Exemption

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Income Tax Deduction and Exemption

Income Tax Deduction

An income tax deduction is defined as cutbacks in the tax responsibility from your aggregate taxable income. This income tax deduction is docked off from your taxable income, which is sometimes called adjusted aggregate income. Income tax deduction usually differs in number as different people’s incomes are treated differently under numerous income tax (IT) act sections. The government has a variety of rebates for home buyers as well. Under section 80EEA, an income tax deduction of Rs. 1.5 Lacs is provided for first-time buyers on home loans for houses valued up to Rs. 45 Lacs till April 2021. The government plans to extend income tax deduction for the next year to meet everyone’s housing deadline by the year 2022.

Income Tax Deduction Under Section 80C to 80U

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

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 the 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 Medical insurance premium and Health check-up Individuals and HUFs
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
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 the quantum of donation Donations to Scientific Research or Rural development Those who do not have income from business or profession
80GGB Depends on the 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

Section 80C

Section 88 was replaced by the Income-tax section 80C on 1st April 2006. This section is capable of providing facilities on the number and type of payments. A maximum of Rs. 1.50 Lacs can be claimed as deductions by the eligible taxpayers per year. Both HUFs and individuals are qualified for income tax deduction under section 80C.

These investments and expenses included in this section are as follows::

  • Investment in PPF: The individual can claim to deduce the investment made in the PPF account. The individual can invest a maximum of ₹ 1.50 Lacs in a year. Receipts on completion and withdrawal are free of tax.
  • 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.
  • Fixed Deposit Investment: Interest gained on FDs with tenure of five years or more are suitable for tax abatement under section 80C. For senior citizens, tax-exempted interest earnings on collaterals with banks progressed from ₹ 10,000 to ₹ 50,000. Moreover, TDS will not be cut back under section 194A, and it has been spread to all FD and RD projects.
  •  Life Insurance Policy Premium: You can demand a cutback under section 80C for the bonus deposited for a life insurance policy according to the IT act.
  • Employee Provident Fund Contribution: You can demand a tax discount for the worker provident fund’s benefaction under section 80C. Government contributes 12% of EPF augmentation for new employees in all sectors. New women employees provide only 8% of salary as EPF contribution rather than 12% earlier.
  • Equity-oriented Mutual Funds: You can claim an income tax deduction for the investment made in any mutual funds unit, whether or not it is listed on a share market.
  • Repayment of Principal on Housing Loan: The taxpayer can demand an income tax deduction on the principal amount paid for the Home loan in section 80C.
  • Tutoring Fees: You can declare a tax abatement for the tuition fees paid under section 80C. The deduction is open for 2 children for each individual. Thus, a discount for up to 4 children can be commanded, 2 by each parent.

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

You can demand a tax deduction under Section 80CCC and 80CCD for the offerings given to Pension Funds. If you have provided any insurance scheme to obtain a pension, you can accredit a tax reduction/discount under 80C.

If you have provided any pension project launched by the government, up to 10% of your salary, like the National Pension Scheme (NPS), you can demand a tax discount under section 80CD. All these exemptions provide earners with the opportunity to save money in a financial year from their income.

Section 80TTA: Deductions for interest on savings/current account

You can ask for a tax abatement under section 80TTA for a bonus earned on your bank’s savings/current account. The reduction is directed to a supreme amount of ₹ 10,000. However, the banks will first combine the revenue earned under the head of Income from other references, and after that, the deduction can be commanded.

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

You can command a tax abatement under section 80CCF for an endowment made in long-term infrastructure agreements announced by the government. You can claim a maximum cutback of up to ₹ 20,000.

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

The discount is also called Rajiv Gandhi Equity Saving Scheme. You are eligible to claim a tax discount for an investment made in scheduled shares or mutual funds. However, the maximum write-off allowed is ₹ 25,000.

80D Income Tax Deduction

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

  • When a person and his parents are more than 60 years of age, the reduction available is ₹ 25,000 each, i.e., a total of ₹ 50,000.
  • When the person, his family, and parents all are more than 60 years of age, then the deduction allowed is ₹ 50,000 each, i.e., a total of ₹ 1 Lakh.
  • When the individual and family are below 60 years of age, but the parents are above 60 years of age, then the available deduction is ₹ 25,000 for the person and his family, along with ₹ 50,000 for parents. Therefore, the overall deduction is ₹ 75,000.
  • For HUF members, the overall deduction allowed is ₹ 25,000 each (self and family plus parents), i.e., a total of ₹ 50,000.
  • For non-resident individuals, the allowable deduction is ₹ 25,000 each, i.e., a total of ₹ 50,000.

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

You can command a tax write-off under this section to repay the medical coverage premium for yourself, your spouse, or any child. Any price paid for a health check-up can also be considered a tax reduction, which shall not pass ₹ 5,000.

Section 80E: An income tax deduction for interest on Education Loan

You can demand a tax abatement under section 80E for interest paid on repayment of an Education loan. The taxpayer can only claim the deduction on the interest paid on repayment of the 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 demand a tax abatement under section 80EE for interest payable for the loan taken to acquire a residential house property. The maximum deduction claimed is ₹ 50,000.

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

You can demand a tax abatement under section 80G for a general donation made during a financial year. The taxpayer can claim deductions under section 80GGA if the offering is provided for Rural Development or Scientific Research. The taxpayer can require abatements under sections 80GGB and 80GGC if the contribution is made to any legislative party.

Section 80GG: An income tax deduction for rent paid for FY18

You can demand a tax abatement under section 80GG for the house rent paid. Nonetheless, you can claim a discount under this section only if you have not received a house rent allowance. If you are receiving HRA, then you are not entitled to 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 a maximum of ₹ 5,000 per month or 25% of total income, whichever is less.

Income Tax ExemptionIncome Tax Deduction

As per chapter III Section 10 of the 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, and 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 a house rent allowance (HRA) from their employer. An exemption against HRA under Chapter 10 of the Income Tax Act is possible if the worker lives in a leased 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 needs to determine how much exemption he can avail and 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 an employer
  • Actual rent paid is less than 10% of the basic monthly salary
  • 40% of the basic income for those staying in any place except New Delhi, Mumbai, Bengaluru, Chennai, and Kolkata. If people stay in these 5 cities, the exemption can be up to 50% of the primary wage.

Leave Travel Assistance – LTA tax exemption.

Leave travel assistance (LTA) received from the employer towards domestic travel costs 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 write-off can only be earned 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 next year as well.

Dialabank provides you with all the essential information and rules associated with Exemptions from Income Tax Deduction.

FAQs about Income Tax Deduction under Section 80c

What is the standard income tax deduction for salaried individuals?

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 ₹ 50,000 for your parents if they are senior citizens. 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 up to ₹ 5,000.

What all comes under 80D?

Under Section 80D, the premium on medical claims of policy and healthcare expenses is covered.

What deductions are allowed for income tax?

Under the Income Tax Act 1961, various provisions and sections cover the income and expenses of different kinds 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 up to ₹ 2.50 Lakh is exempt from tax. Also, there is a tax rebate of up to ₹ 12,500, which effectively makes for zero tax when your taxable income is up to ₹ 5 Lakh. Thus, you can use various deductions and exemptions available and applicable to you for lowering your taxable income to become tax-exempt.