Income Tax Deductions For Tax Saving


(Last Updated On: June 1, 2017)

Few specified expenditures / investments are reduced from your income, and then tax is calculated on the balance income, so they can be termed as tax saving tools. Let’s take a look at the prominent deductions and how they reduce your tax burden.


1. 80C Deductions

This is the most popular deduction for the salaried employees. Total Rs. 1,50,000 can be claimed as deduction under 80C. Some of the expenditures/ investments that fall in this section are:

  • Life Insurance Premium

LIC premium paid on policy of own, spouse or children is eligible for deduction. Premium paid for member of HUF is also eligible.

Expert Advice: Before taking any policy, check premium payment is eligible for deduction for income tax purpose or not. If the premium paid is more than 10% of the capital sum assured, then deduction is not granted for the premium paid over 10%.
  • Public Provident Fund (PPF)

Contribution towards PPF is eligible for deduction. Contributions can be made from Rs. 500 up to Rs. 1,50,000 during a year. You can open the PPF account in your name or, in the name of your spouse or children. Account can also be opened in the name of any member of HUF. Interest is fully tax free. PPF matures after 15 years and withdrawal on maturity is tax free.

  • Unit Linked Insurance Plan (ULIP)

Premium payment towards own, spouse or children is eligible for deduction; further payment towards member of HUF is also eligible.

  • Children’s Tuition Fees

Payment of school or college fees of your children can also save tax for you. However, this Deduction is allowed for maximum of two children.

Expert Advice: Donation, development fees or similar payment is not eligible for deduction.
  • Principal Repayment of Housing Loan

Pay the principal amount of home loan and claim the deduction here. Stamp duty & registration charges are also eligible for deduction.

Expert Advice: If you claim the deduction here, don’t sell the property for 5 years, else you’ll have to pay the tax on the amount of deduction.
  • Sukanya Samridhi Scheme

Protect the future of your daughter by depositing regular amount in the scheme and get high return on maturity and tax benefit each year. Minimum investment is Rs 1000 per year to maximum of Rs. 150000. Interest earned and the money withdrawals on maturity are tax free.

  • Provident Fund

Payment towards Statutory Provident Fund or Recognized Provident Fund by an employee can be claimed here.

  • Bank FDRs 

Open a term deposit with scheduled banks for 5 or more years and claim the deduction of investment.

  • Post Office Time Deposit Scheme

Likewise bank FDRs, post office FDRs opened for 5 or more years are also eligible for deduction.

  • National Saving Certificate (NSC)

Purchase the NSC from post office and claim the deduction of investment.

  • Some other deductions covered under 80C
  • Deferred Annuity Plan.
  • Subscription to any deposit scheme/pension fund of National Housing Bank (NHB).
  • Subscription to bonds issued by National Bank for Agriculture and Rural Development (NABARD).
  • Subscription to notified deposit scheme of Public Sector Housing Finance Company and Housing Development Authority of cities, towns and villages.
  • Contribution towards Approved Superannuation Fund.
  • Deposit in an account under the Senior Citizen Savings Scheme.
  • Contribution towards annuity plans of LIC like Jeevan Dhara, Jeevan Akshay etc. or any other insurer as approved by Central Government;
  • Subscription to equity shares or debentures of Public Company or any Public financial institution forming part of any eligible issue of capital approved by Board where proceeds are utilized for infrastructure company.

2. 80CCC: Pension Plan

If you are individual and making payment to LIC or any approved annuity plan of any other insurer in for receiving pension from fund, then you are eligible for claiming deduction of the payment made or Rs. 150000 whichever is lower.


3. 80CCD(1):  Contribution to pension scheme of Central Government

If you are individual and depositing amount under pension scheme notified by central government, then you are eligible for deduction of least of the following:

  • 10% of [Salary (for employees) or Gross Total Income (for self-employed)];
From F.Y. 2017-18, in case of self –employed the percentage of Gross total Income has been increased from 10 % to 20%.
  • Actual payment made;
  • Balance limit under Section 80CCE*

Further, you can also claim the deduction of payment made by employer to your pension scheme account and the quantum of deduction cannot be more than 10% of salary of employee. Additional Benefit: u/s 80CCD(1B) if you can’t claim the deduction of payment made to NPS under 80CCD(1) because of the limit restriction, then need not worry you can claim the deduction here. Quantum of deduction is Rs. 50000.

Special point : The aggregate amount of deduction under 80C, 80CCC & 80CCD(1) [other than employer’s contributions] cannot exceed Rs. 1,50,000 { 80CCD(1B) is not covered, so limit of Rs. 50,000 is over and above the limit of Rs. 1,50,000.

Let’s take a help of the illustration to understand the concept better:

Mr. A, an employee working in Hindustan Unilever Ltd. has given following Details: Salary of A – Rs. 3,00,000 p.a. LIC premium paid by A – Rs. 50,000 Tuition fees of A’s children – Rs. 80,000 Sukanya Samridhi Scheme – Rs. 90,000 Contribution by A to NPS – 90,000 Contribution by Hindustan Unilever to NPS (related to A) – 40,000

So: Amount eligible for deduction under 80C: LIC Premium = Rs. 50,000 Tuition fees of A’s Children = Rs. 80,000 Sukanya Samridhi Scheme = Rs. 90,000 Total amount of deduction = Rs. 2,20,000 But maximum deduction that can be claimed under 80C = Rs. 1,50,000 Total Deduction that A can claim under 80C = Rs. 150000

Amount eligible for deduction under 80CCD(1): Contribution by A to NPS = Rs. 90,000 Maximum deduction that A can claim under 80CCD(1) for contribution to NPS = 10% of 3,00,000 i.e. 30,000 Contribution by Hindustan Unilever to NPS = Rs. 40,000 Maximum deduction that can be made by HUL to NPS = 10% of 3,00,000 i.e. 30,000 The maximum amount that can be claimed as deduction under 80CCD(1): =150000 – 80C deductions = 150000 – 150000 = 0 Deduction to be claimed under 80CCD(2) = Employer’s contribution subject to 10% of salary of employee 40,000 or 10% of 3,00,000 whichever is lower; Hence employee can claim the deduction of Rs. 30,000 under 80CCD(2) Now according to sec 80CCD(1B), any deposit to NPS can be claimed as deduction if such payment is not eligible for deduction as per 80CCD(1). Since A could not claim deduction of his contribution under 80CCD(1), he is eligible to claim deduction here. Amount of deduction under 80CCD(1B) = [Total contribution by A to NPS – deduction claimed under 80CCD(1)] or Rs. 50,000 whichever is lower = Lower of [90,000 – 0] or Rs. 50,000 Hence A can claim deduction of Rs. 50,000 under 80CCD(1B)

Please note that salary here means basic pay plus dearness allowance (if it forms part of retirement benefits).


4. 80CCG: Rajiv Gandhi Equity Scheme for Investments in Equities

Invest in listed equity shares specified under the scheme and avail the deduction of the lower of 50% of investment or Rs. 25000. From F.Y. 2017-18, this deduction shall not be available for the new persons.

Expert Advice: You cannot sell the shares within 3 years from date of acquisition. If you sell the shares, you’ll have to pay tax on the deduction. Also, your gross total income should not exceed Rs 12 Lakhs.”

5. 80D: Medical Health Insurance

Not only cover yourself and your family from financial crisis in case of emergency through medical policy, but also avail the tax benefits on payment of premium.

Various Cases

Maximum Deduction allowed for Health Insurance Premium

Total Deduction under 80D

Self, Spouse & Dependent Children

Parents

All family members aged 60 years or lessUp to Rs. 25,000Up to Rs. 25,000Rs. 50,000
All family members except you and your wife aged more than 60 yearsUp to Rs. 25,000Up to Rs. 30,000Rs. 55,000
All family members more than 60 years of ageUp to Rs. 30,000Up to Rs. 30,000Rs. 60,000

If you make any payment towards preventive health check-up of yourself or your family, enjoy the deduction up to Rs. 5,000. But this limit is included in the overall limit of Rs. 25,000 or 30,000 as the case may be.

Expert Advice: Do not pay the premium in cash. Cash payments are not eligible for deduction. However preventive health check-up payment can be done by cash. In case of very senior citizen (persons aged 80 years or more), even if the insurance is not done but any medical expenses are incurred on them, its deduction can be claimed in the limit of Rs. 30,000.

6. Section 80E: Interest on Education Loan

Education loan taken for higher studies of self/ spouse/ children/ for student for whom the person is legal guardian provides not only financial aid for education but future tax benefits as well. Whatever the amount of Interest is paid on loan can be claimed as deduction up to 8 years or until interest is fully paid whichever is earlier.


7. 80DD: Maintenance including Medical Treatment of a dependent who is a person with disability

If any payment is made for training, rehabilitation, medical treatment of a dependent disabled person (spouse, children, parents, brothers and sisters and in case of HUF, any member of HUF), such payment is eligible for deduction. Further any payment made to LIC, Unit Trust of India or any other specified scheme is also eligible for deduction. Disability includes: 

  • blindness,
  • low-vision,
  • leprosy-cured,
  • hearing impairment,
  • loco motor disability,
  • mental retardation or
  • mental illness
  • autism
  • cerebral palsy
  • multiple disability

Quantum of deduction : 

  • Rs. 75000 (in case disability is more than 40% but less than 80%)
  • Rs. 125000 (in case disability is 80% or more)
Expert Advice: Benefit available only if deduction not claimed under 80U; further certificate of disability required from medical authority. Actual payment proof not required for claiming deduction.
DisabilityAmount IncurredAllowable deductionDeduction
Normal Disability20,00075,00075,000
Normal Disability80,00075,00075,000
Severe Disability5,0001,25,0001,25,000
Severe Disability1,50,0001,25,0001,25,000
 

8. 80DDB: Deduction in respect of medical treatment on specified disease

Payment made for medical treatment of self or dependent person (spouse, children, parents, brothers and sisters and in case of HUF, any member of HUF) of specified disease or ailment is eligible for deduction here. Quantum of deduction – Actual payment made or Rs. 40,000 whichever is less. In case of senior citizen (60 but below 80 years of age), deduction will be lower of payment made or Rs. 60,000 is allowed. In case of very senior citizens (80 years or age), deduction will be lower of payment made or Rs. 80,000 is allowed

Specified diseases can be listed as below:

  • Neurological diseases where disability level has been certified to be 40% and above:
  • Dementia;
  • Dystonia Musculorum Deformans;
  • Motor Neuron Disease;
  • Ataxia;
  • Chorea;
  • Hemiballismus;
  • Aphasia;
  • Parkinson’s disease
  • Maligant Cancers;
  • Full Blown Acquired Immuno-Deficiency Syndrome (AIDS);
  • Chronic Renal failure;
  • Haematological disorders;
  • Haemophilia
  • Thalassemia
Expert Advice: Obtain the prescription of medical treatment from prescribed specialist. If your employer has reimbursed any amount, then it shall be reduced from the amount of deduction.
PersonAmount IncurredMax allowable deductionDeduction Allowable
Normal Citizen200004000020000
Normal Citizen500004000040000
Senior Citizen250006000025000
Senior Citizen800006000060000
Super Senior citizen4000800004000
Super Senior citizen820008000080000
 

9. 80U: Deduction in case of a person with disability

If a person is certified by a government doctor or medical authority as – Disabled person – Deduction of Rs. 75000; Severally disabled person (having disability of 80% or above) – Deduction of Rs. 125000

Disability includes: 

  • blindness,
  • low-vision,
  • leprosy-cured,
  • hearing impairment,
  • loco motor disability,
  • mental retardation or
  • mental illness
  • autism
  • cerebral palsy
  • multiple disability
Expert Advice: Actual expenditure proof is not required to claim deduction.

10. 80GG: Deduction where House rent is paid and HRA not received

If you are not getting HRA from your employer but still paying the rent, then you are eligible for deduction as follows:

Least of the following amounts:

  • Rent paid minus 10% of Adjusted Total Income ;
  • Rs. 2000/- per month; [From FY 2016-17, its 5000/-]
  • 25% of Adjusted Total Income

Adjusted Total Income = Gross Total Income (-) Long Term & Short Term Capital Gains (-) All deductions except this section.

Expert Advice: In case you are already receiving HRA from employer, then you can’t enjoy benefit of this section as this section is exclusive for person not receiving HRA. Also if you are living with parents or in a rent free accommodation provided from employer, where you don’t have to pay rent, you can’t claim the deduction. Even if your parents, minor child, spouse or HUF owns any house at the place where you reside or do the job, then also you can’t enjoy the deduction.

11. 80GGA: Donation for scientific research and rural development

Whatever you donate for scientific research and rural development can be availed as deduction. But, cash donation of more than Rs. 10,000 is not allowed as deduction. From F.Y. 2017-18, this limit of cash donation amounting Rs. 10,000 has been reduced to Rs. 2,000.


12. 80GGC: Contributions given by any person to Political Parties

Every person other than local authority or artificial judicial person can claim the deduction of donation given to political party.

Expert Advice: Don’t donate in cash since no deduction available for cash payments.

13. 80TTA: Interest on deposits in Savings Account

If you are individual or HUF member, claim the deduction of Interest earned on deposits in saving bank account, cooperative banks or post office. Deduction of actual interest received or Rs. 10000 whichever is lower is eligible. Interest on post office saving bank is not taxable up to Rs. 3500 (for single account) and Rs. 7000 (if account operated in joint name).

Expert Advice: No deduction is available for interest on FD’s.

14. 80G: Donations

Donate generously; it shall not only fulfil your social responsibility but is equally effective for saving tax. But ensure that you donate in monetary terms (other than cash if donation exceeds Rs. 10000). From F.Y. 2017-18, this limit of cash donation amounting Rs. 10,000 has been reduced to Rs. 2,000. Donation in kind is not eligible.

Deduction under this section can be classified into 4 various types:

  • Donations eligible for 100% deduction without qualifying limit;
  • Prime Minister’s National Relief Fund
  • National Defense Fund set up the Central Government
  • Prime Minister’s Armenia Earthquake Relief Fund
  • Africa (Public Contributions India) Fund
  • National Foundation for Communal Harmony
  • University/Educational Institution of National Eminence approved by Prescribed Authority
  • Maharashtra Chief Minister’s Earthquake Relief Fund
  • Fund set up by the State Government of Gujarat, for providing relief to Gujarat earthquake victims
  • Zila Saksharta Samiti
  • The National Blood Transfusion Council or a State Blood Transfusion Council.
  • Any fund to provide medical relief to the poor, set up by the State Government.
  • The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund.
  • The Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
  • National Illness Assistance Fund
  • Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund for any State or UT.
  • National Sports Fund set up the Central Government
  • National Cultural Fund set up the Central Government
  • Central Government’s Fund for Technology Development & Application
  • National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities
  • National Children’s Fund (From AY 2014-15)
  • Donation made by an assessee to the Swachh Bharat Kosh set up by Central government
  • Donation made by any assessee to the Clean Ganga Fund set up by Central government
  • National fund for control of drug abuse. (From AY 2016-17)
  • Donations eligible for 50% deduction of donation amount without qualifying limit;
  • Jawaharlal Nehru Memorial Fund;
  • Prime Minister’s Drought Relief Fund;
  • Indira Gandhi Memorial Trust;
  • Rajiv Gandhi Foundation.
  • Donations eligible for 100% deduction of donation amount with qualifying limit;
  • To Government or any approved local authority/institution/association for the purposes of family planning.
  • Donations by a company to Indian Olympic Association or other notified association or institution for the development of infrastructure or sponsorship for sports & games.
  • Donations eligible for 50% deductions of donation amount with qualifying limit;
  • To Government or any approved local authority/institution/association for purposes other than family planning.
  • Any other fund or institution which fulfils the conditions of section 80G(5)
  • To any Indian authority for the purpose of satisfying the need for housing accommodation or for planning development of cities, towns villages.
  • To any corporation (specified under section 10(26BB)) for promoting interest of members of a minority community
  • Donations to any notified temple, mosque, gurdwara, church or any other place notified by the Central Government for the purpose of repair and renovation.

Qualifying limit is 10% of Adjusted Gross Total Income:

Adjusted Gross Total Income:

Gross Total Income***
(-) Long Term Capital Gains and Short Term Capital Gains u/s 111A***
(-) Deductions from 80C to 80U (except deduction under this section)***
(-) Income of NRIs and Foreign companies***
(-) Income on which income tax is not payable i.e. Share from AOP***

Expert Advice:
You need to provide receipt of donation to Income Tax Department
Read More : Our Complete Guide on Income Tax Deductions

Author


Team Tax2Win