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December 15, 2020

Know 15 deductions you can claim if you are filing salary tax returns

by CA Shivam Jaiswal in Income Tax

Know 15 deductions you can claim if you are filing salary tax returns

An income tax return (ITR) is basically a document that is filed as per the provisions of the Income Tax Act, reporting one’s income, profits and losses and other deductions as well as details about tax refund or tax liability. Chapter VI A of Income Tax Act contains various sub-sections of section 80 that allows an assessee to claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures, donations etc.

Such deductions allow an assessee to considerably reduce the tax payable. Since the current tax filing involves the income earned during the financial year 2019-20, one must check all deductions allowed in that financial year. Salaried employees while filing their Income Tax Returns can avail the benefit of a number of deductions.

Here are 15 deductions you can claim if you filing salary returns:

1. Standard Deduction

A standard deduction of Rs. 50,000 from salary income is available to employees. Standard deduction allows salaried individuals to claim a flat deduction from income towards expenses that would be incurred with relation to his or her employment. There is no proof required in order to claim this deduction.

2. Exemption of House Rent Allowance (HRA)

Rent expense is the cost incurred by a business to utilize a property or location for an office, retail space, factory, or storage space. Rent expense is a type of fixed operating cost or an absorption cost for a business, as opposed to a variable expense. Rental expenses are often subject to a one- or two-year contract between the lessor and lessee or a landlord and tenant, with options to renew. Salaried individuals, who live in rented houses, can claim the House Rent Allowance (HRA) to lower their taxes – partially or wholly under the Income Tax Act. The deduction available is the least of the following amounts:

  • Actual HRA received
  • 50% of [basic salary + DA] for those living in metro cities (40% for non-metros) or
  • Actual rent paid less 10% of basic salary + DA

3. Leave Travel Concession/Allowance

LTC is an exemption for allowance/assistance received by the employee from his employer for travelling on leave. The exemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee. No expenses such as local conveyance, sightseeing, hotel accommodation, food, etc., are eligible for this exemption. The exemption is also limited to LTA provided by the employer.

For instance, if LTA granted by employer is Rs 25,000 and actual eligible travel cost incurred by employee is Rs 15,000, exemption is available only to the extent of Rs 15,000 and balance Rs 10,000 would be included in taxable salary income.

4. Deduction under Section 80C

One can claim a deduction of Rs 1.5 lakh your total income under section 80C. Taxpayers can reduce up to Rs 1,50,000 from their total taxable income, and it is available for individuals and HUFs. Some investments eligible for deduction under Section 80C of The Income Tax Act are:

  • Investment in Sukanya Samriddhi Yojana
  • Investment in ELSS, NPS, SCSS, ULIP, NSC
  • Premiums paid towards life insurance policies
  • Any contribution towards Public Provident Fund (PPF) 
  • Investment in Rural Bonds offered by NABARD etc

5. Deduction under Section 80CCC

Section 80CCC 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. 

6. Deduction under Section 80CCD

Section 80CCD relates to the deductions available to individuals against contributions made to the National Pension Scheme (NPS) or the Atal Pension Yojana (APY). Contributions made by the employers towards the NPS, also come under this section. NPS is a notified pension scheme from the Central Government.

Section 80CCD(1) deals with providing tax deductions to all assessee’s whether employed by the government, any other employers or self-employed individuals. The deduction is limited to a maximum of 10% of salary (basic + dearness allowance only) in case of salaried employees and 10% of gross income in case of self-employed taxpayers. The deduction limit cannot exceed Rs.1 lakh in a fiscal year.

Section 80CCD(2) deals with the employer contribution toward an employee’s NPS funds. Employees can claim this amount as deductions u/s Section 80CCD (2). The amount of deduction is limited to 10% of the employee’s salary.

7. Deduction under Section 80D

Every individual can claim a deduction under Section 80D for their medical insurance which is taken from their total income in any given year. Deduction under Section 80D is available for the below mentioned medical expenditures:

  • Medical Insurance Premium
  • Preventive Health Check Up expenses and
  • Medical expenses like Purchase of medicines, Doctor consultation fees and hospitalization expenses

An individual can claim a deduction of up to Rs 25,000 for the insurance of self, spouse, and dependent children. An additional deduction for the 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 if parents are aged above 60.

ScenarioPremium paid (Rs) for Self, spouse, childrenPremium paid (Rs) for ParentsDeduction under 80D (Rs)
Individual and parents below 60 years25,00025,00050,000
Individual and family below 60 years but parents above 60 years25,00050,00075,000
Both individual, family and parents above 60 years50,00050,0001,00,000
Members of HUF25,00025,00025,000

8. Deduction under section 80DD

This deduction is in respect of maintenance including medical treatment of a dependent who is a person with disability. Deduction is allowed for a dependant of the taxpayer and not the taxpayer himself.

The taxpayer is not allowed this deduction if the dependant has claimed a deduction under section 80U for himself/herself. Dependant in case of an individual taxpayer means spouse, children, parents, brothers & sisters of the taxpayer. In case of a HUF means a member of the HUF.

The taxpayer has incurred expenses for medical treatment (including nursing), training & rehabilitation of the differently abled dependant or the taxpayer may have deposited in a scheme of LIC or another insurer for maintenance of the dependant. Disability of the dependant is not less than 40%.

Amount of deduction allowed is –

  • Rs 75,000 where disability is more than 40% and less than 80%.
  • Rs 1,25,000 where disability is more than 80%.

These deductions are allowed irrespective of your actual expenditure.

9. Deduction under section 80DDB

Deduction is available in respect of expenditure up to Rs 40,000 on medical treatment of specified disease from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist, as may be prescribed. In the case of a senior citizen and super-senior citizen, deduction is Rs 1,00,000 or amount actually paid, whichever is less.

10. Deduction under section 80TTA

Section 80TTA provides a deduction of Rs 10,000 on interest income. This deduction is available to an Individual and HUF.

This deduction is allowed on interest earned:

  • From a savings account with a bank
  • From a savings account with a co-operative society carrying on the business of banking
  • From a savings account with a post office

This deduction is not allowed on interest earned on time deposits:

Deduction under Section 80TTA shall not be allowed for:

  • Interest from fixed deposits
  • Interest from recurring deposits
  • Any other time deposits

11. Deduction under Section 80GG

Section 80GG 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. The taxpayer should not have self-occupied residential property in any other place. The taxpayer must be living on rent and paying rent. The deduction is available to all individuals

Deduction available is the least of the following:

  • Rent paid minus 10% of adjusted total income
  • Rs 5,000 per month
  • 25% of adjusted total income

Adjusted Gross Total Income is arrived at after adjusting the Gross Total Income for certain deductions, exempt income, long-term capital gains and income related to non-residents and foreign companies.

12. Deduction under Section 80E

A deduction is allowed to an individual for interest on loans 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 loan should be taken from any bank / financial institution or any approved charitable institutions. Loans taken from friends or relatives do not qualify for this deduction. The deduction allowed is the total interest part of the EMI paid during the financial year.

There is no limit on the maximum amount that is allowed as deduction. The loan should be taken to pursue higher studies. It does not matter whether such education loan is taken for higher studies in India or outside India. Higher studies include all the fields of study pursued after passing the senior secondary examination or its equivalent exam. It includes both vocational as well as regular courses. 

13. Deduction under Section 80EE

This deduction is in respect of interest on loan taken for residential house property. The deduction under this section is available only to individuals.

Value of the house should be Rs 50 lakhs or less. Loan taken for the house must be Rs 35 lakhs or less

The loan must be sanctioned by a Financial Institution or a Housing Finance Company. The loan must be sanctioned between 01.04.2016 to 31.03.2017. As on the date of the sanction of loan, no other house property must be owned by the individual.

14. Deduction under Section 80U

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, one can claim a deduction of Rs 1,25,000.

15. Deduction under Section 80GGC

Deduction under section 80GGC is allowed to an individual taxpayer for any amount contributed to a political party or an electoral trust. It is not available for companies, local authorities and an artificial juridical person wholly or partly funded by the government. Individuals can avail this deduction only if they pay by any way other than cash.  

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