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ULIP INSURANCE

Income Tax Deductions for Individuals

Joan Mathews Joan Mathews 10 February 2020

The Income Tax Act provides for various tax deductions that help bring down the tax liability on entities. Read this article to know the different ways by which individuals can reduce their tax burden.

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As we’re heading to the last quarter of the financial year, employees everywhere would’ve received a deadline from their companies to handover their investment proofs (qualifying their income for income tax deductions). The deductions, allowed under the Indian Income Tax Act, 1961, for investment instruments for tax-saving helps reduce investor’s liability to pay tax. In this article, we will look at some of the major deductions available to salaried persons, whereby they can bring down their tax burden.

List of Income Tax Deductions

  • Section 80C: Under this section, individuals can claim deduction from gross total income of up to Rs. 1,50,000 per annum on certain investments. Life insurance, ELSS, PPF, NSC, Senior Citizens' Savings Scheme and Sukanya Samriddhi Account are some of the popular investment avenues eligible for deduction under Section 80C.

  • Section 80CCC: This provides deductions of up to Rs. 1,50,000 per annum for contributions toward pension or a periodical annuity. It is important to note that the pension amount, which can include bonuses and interests on annuity, is taxable.

  • Section 80CCD: Deductions can be claimed by individuals for contributions made to the Atal Pension Yojana or the National Pension Scheme. Contributions toward the NPS by the employers also come under this section. (Note - The overall deduction limit under 80C, 80CCC and 80CCD is Rs.1,50,000, with an additional deduction of Rs. 50,000 allowed u/s 80CCD(IB)).

  • Section 80D: Tax deduction under Section 80D can be claimed for health insurance premiums paid for self and family members. A deduction of up to Rs. 25,000 can be claimed for insuring self, spouse, and dependent children. An additional deduction of up to Rs. 25,000 can be claimed for insuring parents, who are below 60 years.

If the parents are over 60 years, the deduction that can be claimed is up to Rs. 50,000. In case the individual and his or her parents are more than 60 years, the maximum deduction that can be availed is up to Rs. 1,00,000.

  • Section 80DD: An individual who has a dependent family member suffering from a disability can claim tax benefit under this section. The expenses eligible for deduction include “medical treatment (including nursing), training and rehabilitation” of the dependent or any amount paid as insurance premium, subject to certain conditions.

  • Section 80E: This benefit can be claimed with regards to repayment of loan taken for higher education. The loan should be availed for the higher education of self, spouse, children or for a student for whom the individual is a legal guardian.

  • Section 80G: Contributions made to certain charities and relief funds via cheque or cash can be claimed as a deduction under Section 80G. Effective AY 2018-19, an entity can avail a maximum deduction of Rs. 2,000 for donation made in cash.
  • Section 80GG: Deduction under Section 80GG is available to employees who do not get HRA and self-employed persons. The limit of deduction under the section is Rs. 60,000 per year. It cannot be claimed by persons who own a house but reside in a rented house in the same city.
  • Section 80TTA: This deduction can be claimed on interest earned from a savings account with a bank, a co-operative society carrying on the business of banking or a post office. The maximum deduction that can be claimed under this section is Rs. 10,000.
  • Section 194A: TDS on Interest other than Interest on Securities, through this section, one can claim a maximum deduction amount of Rs. 40,000 for interest income received from a bank, a co-operative society carrying on the business of banking, or a post office. For senior citizens, the maximum deduction amount is Rs. 50,000.

Conclusion

There are a number of tax saving provisions covered under Section 80 of the Income Tax Act. Before investing, individuals are advised to take into account the extent of tax benefit they can claim under each of the sections. Knowledge of how to reduce taxable income through investments is a vital component of effective financial planning.

Joan Mathews
Written by Joan Mathews
Joan has over 4 years of experience writing for the BFSI industry. She enjoys watching mystery TV series, listening to 80s classics and spending time with her furbabies.