Save your taxes this Financial Year by Investing wisely

The Income Tax Act provides that on determination of the gross total income of an assessee after considering income from all the heads, certain deductions there from may be allowed. These deductions detailed in chapter VIA of the Income Tax Act must be distinguished from the exemptions provides in Section 10 of the Act. While the former are to be reduced from the gross total income, the latter do not form part of the income at all. In this article we will know about all the major deductions covered under chapter VIA:

Various deductions under chapter VIA:

Below are the various deductions under chapter VIA:

1. Section 80C- Specified Investments:

Section 80C of the Income Tax Act of India is a clause that points to various expenditures and investments that are exempted from Income Tax. It allows for a maximum deduction of up to Rs.1.5 Lakhs every year from an investor’s (Individual and HUF) total taxable income. Section 80C features multiple instruments, a comprehensive idea of which should be present with every investor. The benefits offered by this act can help save a substantial amount from one’s tax liability.

a. Life insurance premiums – 

Premiums paid towards life insurance policies are eligible to receive tax benefits as per 80C limit. These exemptions are available against policies held by self, spouse, dependent children, etc. Hindu Undivided Family members can also benefit from the same exemptions.

Currently, an annual premium of up to 10% (of the insurance policy’s total sum assured) is tax exempted under this scheme. This clause has been revised on 1st April 2012, prior to which premiums of up to 20% (of the sum assured) was liable for tax exemption under Section 80C deduction.

b. Public Provident Fund – 

Any contribution towards Public Provident Fund (PPF) can be filed for tax deduction under Section 80C. Public Provident Funds come with a maximum deposit limit of Rs.1,50,000, allowing an investor to claim the entire deposited amount as an exemption under this Income Tax act.

Any voluntary contribution made by the employee towards the provided fund is also eligible for tax deduction under Section 80C of the Income Tax Act.

c. NABARD Rural Bonds – 

NABARD stands for National Bank for Agriculture and Rural Development. Rural Bonds offered by NABARD are eligible for tax exemption under the Income Tax Act of India. The maximum deductible amount is capped at Rs.1.5 lakh under Section 80C.

d. Unit Linked Insurance Plans (ULIPs) – 

Unit Linked Insurance Plans offer more returns in the long term when compared to conventional insurance policies. They have become especially popular in recent years thanks to the tax benefits offered under Section 80C of the Income Tax Act, 1961. Investors can avail tax exemptions up to Rs. 1.5 lakh on the invested amount u/s 80C income tax provisions.

e. National Savings Certificate – 

NSC or National Savings Certificate is one of the most popular tax-saving instruments for risk-avert individuals. Interest earned on NSC is compounded semi-annually, and the maximum maturity period ranges from 5 to 10 years.

Investors do not have to follow any limitation on the total sum invested towards NSC in a financial year; however, only a maximum of Rs.1.5 lakh will be subject to exemption every financial year under Section 80C.

f. Tax Saver FD – 

Tax Saving FDs are fixed deposit schemes offered by both banks and post offices that allow tax deduction under Section 80C. These FDs have a lock-in period of 5 years and offer a maximum of Rs.1.5 lakh tax exemption (on the principal amount). However, the returns of such instruments are liable for taxation.

g. Employer Provident Fund – 

The return earned from Employee Provident Fund (EPF), including the interest, is eligible for tax exemption under Section 80C of the Income Tax Act, 1961. It is only eligible for employees who have continued his or her service for at least 5 years. If individuals make voluntary contributions to their EPF accounts, such amount is eligible for tax exemptions under Section 80C.

h. Infrastructure Bonds – 

Section 80C of the Income Tax Act allows tax exemptions on infrastructure bonds, provided the investment is equal to or higher than Rs.20,000. The limit of Rs.1.5 lakh stays applicable for these long-term secured bonds as well.

i. Equity-Linked Saving Scheme – 

Equity Linked Saving Schemes, or ELSS, falls under Section 80C’s exemption category for up to its maximum limit (Rs.1.5 lakh). These investment schemes come with a mandatory 3 year lock-in period.

j. Senior Citizens Savings Scheme – 

Any investments made towards Senior Citizens Saving Scheme, (or SCSS) is eligible for tax exemption up to the maximum allocated 80C limit, i.e. Rs. 1.5 lakh. Individuals above the age of 60 (people opting for voluntary retirement scheme is eligible to participate in SCSS after the age of 55 years) years are eligible to get benefit from SCSS, which has a minimum lock-in tenure of 5 years.

k. Principal repayment made towards home loan – 

Only the repayments made towards the principal component of home loan EMIs are eligible for deduction under Section 80C. However, the borrower has to fulfil certain clauses to avail of this benefit; these are –

1. Exemptions can only be claimed if the construction of the property is completed.
2. Transference of the property within 5 years of possession will exclude it from the tax exemptions provided under Section 80C of the Income Tax Act, 1961.

Any amount claimed as a tax deduction should be taxable in the transfer year if a handover is made after 5 years of the property’s possession. Failing to meet this clause will also render it excluded from Section 80C’s guidelines.

l. Stamp duty and registration charges – 

Stamp duty and registration charges can be considered as the two largest expenses made towards taking ownership of a property. The Government of India allows a deduction of tax liability till the 80C limit on the stamp duty and registration charges paid towards house procurement. However, exemptions can only be claimed in the year that these duties are paid; otherwise it will not be eligible for consideration under Section 80C deduction.

m. Sukanya Samriddhi Yojana – 

Sukanya Samriddhi Yojana is a saving scheme specially designed to meet the financial requirements for a girl’s education and marriage. Parents or legal guardians of a girl child (not older than 10 years of age) can open this account and parents of 2 or more (only in case of twins) girls can also invest in this plan. The interest earned from this investment scheme is eligible for tax exemption under Section 80C.

2. 80CCC: Payment for premium for annuity plan of LIC

80CCC allows deduction for payment towards annuity pension plans 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. . It allows for a maximum deduction of up to Rs.1.5 Lakhs every year from an investor’s (Individual and HUF) total taxable income. The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any other insurer for receiving pension from the fund.

3. 80CCD: Deduction for NPS made by assessee:

Deposit made by a person in his pension account is eligible for deduction up to a maximum of Rs. 1,50,000. Where the Central Government makes any contribution to the pension account, deduction of such contribution to the extent of 10% of salary shall be allowed. Further, in any year where any amount is received from the pension account such amount shall be charged to tax as income of that previous year.

3. 80CCD(1b) : Deduction for NPS

Assessee is eligible for additional deduction of Rs. 50000 for amount deposited to NPS account. Contributions to Atal Pension Yojana is also eligible for deduction

4. Section 80D: Medical Insurance premium paid

This provision is available in respect deduction for premium paid for Medical Insurance of assessee. Assessee can claim deduction up to Rs.25,000 under section 80D on insurance for self, spouse and dependent children. An additional deduction for insurance of parents is available up to Rs 25,000, if they are less than 60 years of age. If the parents are aged above 60, the deduction amount is Rs 50,000, which has been increased in Budget 2018 from Rs 30,000.

In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction available under this section is up to Rs.1 lakh.

5. 80DD: Deduction in respect of expenditure on medical treatment of handicapped dependent relative

This provision is available for deduction of:

(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.

The assessee can claim deduction as follows:

i. Where disability is 40% or more but less than 80% – fixed deduction of Rs 75,000.

ii. Where there is severe disability (disability is 80% or more) – fixed deduction of Rs 1,25,000.

In order to claim deduction the handicapped dependent should be a dependent relative suffering from a permanent disability (including blindness) or mentally retarded, as certified by a specified physician orpsychiatrist. 

Note: 

A person with severe disability means a person with 80% or more of one or more disabilities as outlined in section 56(4) of the “Persons with Disabilities (Equal opportunities, Protection of Rights and Full Participation) Act.,

6. Section 80DDB: Deduction for Medical Expenditure for specified disease

This provision is available for deduction in respect of medical expenditure incurred for specified disease. The deduction shall be as follows:

a. For individuals of less than 60 years: A deduction up to Rs.40,000 is available to a resident individual or a HUF.

b. For senior citizens and super senior citizens: In case the individual on behalf of whom such expenses are incurred is a senior citizen, the individual or HUF taxpayer can claim a deduction up to Rs 1 lakh. 

c. For reimbursement claims: 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.

Note:

1. Expenditure must be actually incurred by resident assessee on himself or dependent relative for medical treatment of specified disease or ailment.

2. The diseases have been specified in Rule 11DD.

3. A certificate in form 10I is to be furnished by the assessee from a specialist working in a Government hospital.

4. Budget 2015 has proposed for the purpose of claiming deduction under the section assessee will be required to obtain a prescription from a specialist doctor instead of Certificate.

7. Section 80E: Interest on Education Loan

This provision covers deduction in respect of payment in the previous year of interest on loan taken from a financial institution or approved charitable institution for higher studies. This provision has been introduced to provide relief to students taking loans for higher studies. The payment of the interest thereon will be allowed as deduction over a period of upto 8 years.

Further, by Finance Act, 2007 deduction under this section shall be available not only in respect of loan for pursuing higher education by self but also by spouse    or
children of the assessee. w.e.f. 01.04.2010 higher education means any course of study pursued after passing the senior secondary examination or its equivalent from any recognized school, board or university.

8. 80G: Donation to certain funds, charitable institutions etc.

Contributions made to certain relief funds and charitable institutions can be claimed as a deduction under Section 80G of the Income Tax Act. All donations, however, are not eligible for deductions under section 80G. Only donations made to prescribed funds qualify as a deduction. This deduction can be claimed by any taxpayer – individuals, company, firm or any other person.

The various donations specified in Sec. 80G are eligible for deduction up to either 100% or 50% with or without restriction as provided in Sec. 80G. Following is the list of funds eligible for 100% or 50% of deduction under 80G:

A. Donations Eligible for 100% Deduction without 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 FY 2014-15)
• Clean Ganga Fund (applicable from FY 2014-15)
• National Fund for Control of Drug Abuse (applicable from FY 2015-16)
• Donation to PM Cares fund

B. Donations Eligible for 50% Deduction Without Qualifying Limit

• Jawaharlal Nehru Memorial Fund
• Prime Minister’s Drought Relief Fund
• Indira Gandhi Memorial Trust
• Rajiv Gandhi Foundation

C. Donations Eligible for 100% Deduction Subject to 10% of Adjusted Gross Total Income

• Donations to the 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 Eligible for 50% Deduction Subject to 10% of Adjusted Gross Total Income

• Any other fund or any institution which satisfies the 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 to in Section 10(26BB) for promoting the interest of the minority community
• For repairs or renovation of any notified temple, mosque, gurudwara, church or other places.

9. Deduction in respect of rent paid

Deduction available is the least of

• Rent paid less 10% of total income
• Rs.2000 per month
• 25% of total income

Note:

(1) Assessee or his spouse or minor child should not own residential accommodation at the place of employment.

(2) He should not be in receipt of house rent allowance.

(3) He should not have self-occupied residential premises in any other place

10. 80TTA: Deduction in respect of interest on deposits in savings account

Section 80TTA is introduced wef A.Y. 2013-14 to provide deduction to an individual or a Hindu undivided family in respect of interest received on deposits (not being time deposits) in a savings account held with banks, cooperative banks and post office. The deduction is restricted to lower of Rs 10,000 or actual interest.

11. 80TTB: Deduction in respect of interest on deposits for senior citizens

Section 80TTB has been introduced in Budget 2018 which provides deductions with respect to interest income from deposits held by senior citizens will be allowed. The limit for this deduction is Rs.50,000.

12. 80U: Deduction in respect of Disabled Individuals

A resident individual who has been certified as a person with a disability by the medical authority can claim the tax benefit under Section 80U.

The deduction shall be as follows:

a. An individual who has a prescribed disability with 40% disability or 80% disability can claim deduction under section 80U of the Income Tax Act The amount of deduction available to a disabled individual is Rs 75,000.

b. In the case of 80% or more disability, the deduction is Rs 1,25,000

13. 80RRB: Deduction in respect of any income by way of royalty in respect of a patent registered

This section covers deduction in respect of any income by way of royalty in respect of a patent registered on or after 01.04.2003 under the Patents Act 1970. The deduction shall be as follows:-

a. Rs. 3 lakhs or

b. Income received,

Whichever is less

14. 80QQB: Deduction in respect of royalty or copyright income received

This section covers deduction in respect of royalty or copyright income received in consideration for authoring any book of literary, artistic or scientific nature other than text book shall be available to the extent as follows:

a. Rs. 3 lakhs or

b. Income received,

Whichever is less

15. 80GGB: Deduction on contributions given by companies to Political Parties

Section 80GGB deduction is allowed to an Indian company for the amount contributed by it to any political party or an electoral trust. Deduction is allowed for contribution done by any way other than cash.

16. 80GGC: Deduction on contributions given by any person to Political Parties

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. You can avail this deduction only if you pay by any way other than cash.

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