Tax-Tips

Some of the Sections of Income Tax Act, 1961 are detailed here below which are in the nature of deductions from the taxable income which effectively reduces tax payable by an assessee. They are –

Investment in specified instruments and expenses

Section 80C / 80CCC / 80CCD provides deduction from total income up to a maximum of Rs. 1,00,000/- to every income tax payer either individual or HUF in a year if they invest in the following avenues. Please note that there is a combined overall limit of Rs. 1,00,000/- for all the investments.

  1. Life insurance Premium paid for Individual / spouse / children / Members of HUF
  2. Contribution towards Employees’ / Public Provident Fund (EPF/PPF)
  3. Principal amount in repayment of home loan
  4. Contribution to Equity Linked Savings Schemes (ELSS) of Mutual Fund Companies
  5. Infrastructure Bonds
  6. National Savings Certificates (NSC) &Accrued Interest thereon
  7. Tax Saving Five year term Deposits with Banks / Post Office
  8. Tuition Fees of children (does not include payment towards development fees / donation / payment of similar nature)
  9. Payment in respect of non-commutable deferred annuity
  10. Contribution towards an approved superannuation fund
  11. Contribution for participating in the notified unit-linked insurance plan (ULIP) / Annuity plan / Pension Fund
  12. Subscription to any notified bonds of National Bank for Agriculture and Rural Development (NABARD)
  13. Amount deposited under Senior Citizens Saving Scheme

Comparison of 80C Investment Avenues

Type Of Investment
Lock In Period
Returns
Risk
Taxation Of Returns
Equity Linked Savings Scheme (Mutual Fund)
3 Years
Market Linked
High
No Tax
Life Insurance Premium
2 Years
6%
Low
No Tax
ULIP Premium (Note 1)
3 years
Market Linked
High
No Tax
PPF (Fixed Return)
15 Years
8%
Low (Note 2)
No Tax
Home Loan Repayment
5 years
NA
NA
NA
Infrastructure Bonds(Fixed Returns)
3 Years (min)
6%
Risk Free
Interest is Taxed
NSC (fixed returns)
6 Years
8.16%
Risk Free
Interest is Taxed
Tax Saving Fixed Deposits(fixed returns)
5 years
7%-9%
Risk Free
Interest is Taxed
Senior Citizen Savings Scheme
5 Years
7.5%-9.5%
Risk Free
Interest is Taxed

Note:

  1. ULIP premium needs to be at least 1/5th of the sum assured to qualify under Section 80C
  2. PPF returns are set by the Government of India and can be revised either upwards or downwards in any year.

Section 80D: Health Insurance Premium (Mediclaim Premium)

You can take advantage of an annual deduction of Rs. 15,000/- from taxable income for payment of Health Insurance premium for yourself, your spouse and dependant children (In case of senior citizens, maximum deduction is Rs. 20,000/-).

You can also claim additional deduction for Rs. 15,000/- on health insurance premium paid for your parents (whether dependent or not) (In case of senior citizens, maximum deduction is Rs. 20,000/-).

HUF can also claim deduction on health insurance premium paid for any member of family for Rs. 15,000/-. (In case of premium being paid for any senior citizen member, maximum deduction is Rs. 20,000/-).

To claim deduction under this section, the payment can be made by any mode other than cash.

Section 80DD: Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability

If you incur expense on medical treatment of a person dependent on you, who suffers from disability and a certificate in prescribed form no. 10-IA is furnished by a resident government doctor, you are entitled to a fixed deduction (irrespective of expenditure incurred) of Rs. 50,000/- (if disability is more than 40% but less than 80%) or higher fixed deduction of Rs. 1,00,000/- (if disability is 80% or more).

Similar deduction can also be claimed, if you have deposited any amount for the maintenance of a disabled dependent under a scheme framed in this behalf by the LIC or any other insurer or the Administrator or the specified company subject to the condition that in case of your death such dependent is in receipt of annuity or lumpsum amount. The term ‘dependent’ means your spouse, children, parents, brothers and sisters.

However, it is important to note that the dependent person with disability should not claim any deduction under Section 80U.

Section 80E: Interest paid on educational loans

You can claim a deduction on the interest paid on loans taken for higher education including vocational studies after passing SSC Exams for yourself, your spouse and children.

There is no limit on the amount of deduction however deduction is available for a maximum period of 8 years starting from the year in which payment of interest has started.

Section 80G: Donations to Charitable institutions

You can claim a deduction for any donation made to a charitable fund or institution. Based on the classification of the donee, you can either claim 100% or 50% of the donation as deduction.

Section 80GG: Deductions in respect of rents paid

If you have paid rent for any furnished or unfurnished accommodation occupied for the purpose of your own residence, you can claim deduction under this section. This benefit is available to both, self employed and salaried individuals who are not in receipt of any House Rent Allowance (HRA). In order to be eligible for this deduction, you, your spouse or minor child should not own any residential accommodation in India or abroad.
The deduction available under this section is the least of:

  • 25% of the total income or,
  • Rs 2,000 per month or,
  • Excess of rent paid over 10% of total income

Section 80U: Deduction for disabled person

If you are suffering from disability and a certificate in prescribed form no. 10-IA is furnished by a resident government doctor, you are entitled to fixed deduction (irrespective of expenditure incurred) of Rs. 50,000/- (if disability is more than 40% but less than 80%) or higher fixed deduction of Rs. 1,00,000/- (if disability is 80% or more).

Section 24: Interest paid on housing loan

A maximum sum of Rs. 1,50,000/- (in case of loan taken on or after 01-04-1999) can be deducted from your taxable income as interest payment for purchase / construction of a house property.

However, if loan is taken for repair / reconstruction of a house property or if loan is taken before 01-04-1999 for any purpose, deduction of interest is restricted to Rs. 30,000/-.

Please note that this deduction is not available if the house is still under construction and you do not have possession of the said house.

Provisions that you should take advantage of if you are a salaried employee

House Rent Allowance

You can take advantage of the provisions under this section if you have taken a house on rent. Under Section 10(13A), exempted portion of HRA is calculated as follows:

  1. 50% (for Delhi, Mumbai, Chennai, Kolkata) or 40% (other cities) of Salary i.e. [basic salary + Dearness Allowance (forming part of retirement benefits) + Commission (as fixed percentage of turnover)]; or
  2. Excess of rent paid over 10 per cent of Salary; or
  3. Actual HRA received.

whichever, is less

Lets illustrate this calculation with an example:

Assumptions

HRA per month = Rs. 12,000

Basic monthly salary = Rs. 20,000

Monthly rent = Rs. 15,000

Rental accommodation is in Mumbai.

Exemption

The amount of HRA exempt per month would be the least of the following:

  1. Actual amount of HRA: Rs. 12,000
  2. 50% of salary (basic component + dearness allowance) = 50% x (20,000 + 0) = Rs. 10,000
  3. Actual rent paid - 10% of salary (basic component + dearness allowance)= Rs. 15,000 - [10% of (20,000 + 0)] = 15,000 – 2,000 = Rs 13,000

Rs. 10,000 the least of the three amounts will be the exemption from HRA. The balance HRA of Rs. 2,000 (12000 - 10000) would be taxable.

Please note that HRA exemptions are only available on submission of rent receipts or the rent agreement.

Transport Allowance

Transport allowance granted for commuting between the place of residence and place of work is exempt up to Rs. 800/- per month (Rs. 1,600 p.m. if the assessee is blind or orthopaedically handicapped with disability of lower extremities). Benefit can be availed for Rs. 9,600/- per year (Rs. 19,200/- p.a. in case of handicapped) by providing a self declaration / expense voucher to the employer.

Children Education Allowance

You can claim deduction of an amount of Rs. 100/- per month per child (maximum two children), i.e. maximum of Rs. 2,400/- per year for allowance given for education of your children.

Hostel Allowance

You can claim deduction of an amount of Rs. 300/- per month per child (maximum two children), i.e. maximum of Rs. 7,200/- per year for allowance given to meet the hostel expenditure of your children.

Section 17(2): Medical Reimbursement

You can claim exemption up to Rs 15,000/- per year on actual expenditure incurred on your medical treatment or for treatment of any of your dependants. Moreover, there is no restriction of approved hospitals or clinic for the same. This is exempt only on production of actual bills.

However, if the amount is paid out as an allowance not as a reimbursement, than it would be fully taxable.