So, what exactly is an Income Tax Deduction?


A deduction from an Income Tax point of view, is the investment / expenditure made by you on specified items which are deducted from your gross income thereby reducing your total income and tax on total income.

Let's see how Income Tax Deductions reduces your Tax Liability:

Particulars Income Tax Deduction of Rs. 1,50,000 No Income Tax Deduction
Gross Income before deduction Rs. 5,00,000 Rs.5,00,000
Income Tax Deductions Rs. 1,50,000 NIL
Net taxable Income >Rs. 3,50,000 Rs. 5,00,000
Tax Liability before Rebate and Cess Rs. 10,000* Rs. 25,000*
*All the calculations are done based on F.Y.2016-17 tax slab.

Types of Income Tax Deduction are :-


There are different types of schemes introduced by government of India for providing the Income Tax Deductions.

80C Deductions: LIC, PF, PPF etc.

80C deductions are the most popular Income Tax Deductions. The maximum tax deduction benefit that you can avail under this section is Rs. 1,50,000. The various options of investments and payments that qualify for deduction under this section are:

  • Life Insurance Premium (LIP) Deduction is allowed in respect of life insurance premium that you pay on your LIC policy but policy must be in the name of:

    1. In case of an individual:Individual, spouse or any child of such individual.
    2. In case of HUF: Any member of HUF.
  • Do note that before making the payment towards the premium, first check with agent or read the policy description whether it is eligible for deduction for income tax purpose.

  • Public Provident Fund (PPF) Deduction is allowed in respect of Contribution made by you towards your PPF. The limit for minimum deposit in PPF A/C is Rs. 500 and limit for maximum deposit is Rs 1,50,000 during a year. PPF can be in the name of:

    1. In case of an individual:Individual, spouse or any child of such individual.
    2. In case of HUF: Any member of HUF.

    The best part about PPF is that the interest you receive on your PPF account and receipts on maturity or withdrawals is fully tax free. The PPF account matures after 15 years but part of the money can be withdrawn after 5 years.

  • Unit Linked Insurance Plan (ULIP) Deduction is allowed in respect of Contribution made by you towards your ULIP. You can make investments in the name of:

    1. In case of an individual: Individual, spouse or any child of such individual.
    2. In case of HUF: Any member of HUF.
  • Children's Tuition Fees You can claim deduction for the payment of tuition fees of your children to any university, college, school or other educational institution situated within India for the purpose of education. However, deduction would not be allowed for payment towards any development fees or donation or payment of similar nature. This deduction is allowed for maximum two children.

  • Principal Repayment of Housing Loan You can claim the deduction of principal repayment of your housing loan taken for purchase or construction of residential house property. Deduction can also be availed in respect of stamp duty charges, registration fee and other expenses paid for purchase of your house. This deduction is available for both individuals and HUF.

    But keep in mind that if you sell/transfer such house property in respect of which such deduction was taken before expiry of 5 years from the end of financial year in which possession was taken, then the deduction availed in the earlier years will be taxable for you in that year.

    Example:
    Year Financial Year Installment Interest Principal paid
    1 2015-16 Rs. 15,773.54 Rs. 5,000.00 Rs. 10,773.54
    2 2016-17 Rs. 15,773.54 Rs. 3,922.65 Rs. 11,850.89
    3 2017-18 Rs. 15,773.54 Rs. 2,737.56 Rs. 13,035.98
    4 2018-19 Rs. 15,773.54 Rs. 1,433.96 Rs. 14,339.58
    Deduction available for FY 2015-16 Rs 10773.54/-
    Deduction available for FY 2016-17 Rs 11850.89/-
    Deduction available for FY 2017-18 Rs 13035.98/-
    Deduction available for FY 2018-19 Rs 14339.58/-
  • Sukanya Samriddhi Scheme In lines with the Beti Bachao, Beti Padao campaign, this scheme was launched on 22nd January, 2015 by Prime Minister Narendra Modi. You claim deduction under this scheme for any sum deposited by you in the Sukanya Samriddhi Account of your girl child or any girl child for whom you’re her legal guardian. The minimum limit of deposit under this account is Rs 1000 annually and maximum Rs 1,50,000. Interest earned and money withdrawals from this account are tax free.

  • Mutual Funds (Equity Linked Saving Scheme) You can claim deduction in respect of subscription to units of UTI or mutual funds specified u/s 10(23D) of Income Tax India, 1961.

  • Provident Fund If you're an employee, then you can claim deduction in respect of contribution towards your Statutory Provident Fund or Recognized Provident Fund Account.

  • Bank FDRs (Known as 5 Year Tax Saving FDRs) Almost everyone invests in Bank FDRs but did you know that you can claim deduction for it too. Investment must be made in term deposit for a fixed period of 5 years or more with scheduled banks to avail the deduction.

  • Post Office Tax Saving FDRs (Post Office Time Deposit Scheme) Similar to Bank FDRs, 5 year FDRs of Post Offices are also eligible for deduction under section 80C.

  • National Saving Certificate (NSC) Subscribe to NSC and you’ll be eligible for deduction for the amount you contribute. These can be purchased from Post Office.

  • Deferred Annuity Plan You can claim deduction in respect of payment made by you under Deferred Annuity Plan. This annuity may be in your name, your spouse's name or in the name of any of your child. But to claim deduction under this annuity plan, there should be no provision of receiving cash in lieu of annuity.
    And, if you're a government employee and any sum is deducted from your salary under deferred annuity plan, then deduction is restricted to only 1/5th of your salary.

  • Others
    1. Contribution towards Approved Superannuation Fund.
    2. Subscription to any deposit scheme/pension fund of National Housing Bank (NHB)
    3. Subscription to bonds issued by National Bank for Agriculture and Rural Development (NABARD)
    4. Deposit in an account under the Senior Citizen Savings Scheme.
    5. Subscription to notified deposit scheme of:
    6. Public Sector Housing Finance Company
    7. Housing Development Authority of cities, towns and villages
    8. Contribution towards annuity plans of LIC like Jeevan Dhara, Jeevan Akshay etc. or any other insurer as approved by Central Government.
    9. 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.

80CCC: Pension Plan

Deposit/Payment made by you towards LIC or any other insurer in the approved annuity plan for receiving pension from the fund referred to in section 10(23AAB) can be claimed as deduction under this section being lower of the following:

  • 100% of the amount paid
  • Rs 1,50,000

However, as per section 80CCE, you can claim deduction of only Rs 1,50,000 under section 80C, 80CCC, and 80CCD (1) cumulatively.

Case No. Investment u\s 80C Investment u\s 80CCC Limit Available (Refer Note 2) Deduction u\s 80CCC
1 60,000 40,000 90,000 40,000
2 1,20,000 60,000 30,000 30,000
3 40,000 90,000 1,10,000 90,000
4 1,40,000 1,50,000 10,000 10,000
5 0 1,70,000 1,50,000 1,50,000

Note: Limit available means: Rs 1,50,000 - Investment u\s 80C - Investment u/s 80CCC.

Section 80CCD: [Deduction in respect of contribution to pension scheme of Central Government]

This deduction is divided into three different categories:
  • 80CCD (1):You can avail this deduction irrespective of whether you're in employment or self-employed on the amount deposited under pension scheme notified by the Central Government (NPS). The deduction allowed in this section is lower of the following 3 amounts:
    1. 10% of your Salary (in case you're in employment) or Gross Total Income (in case you're self-employed)
    2. Limit left under section 80CCE i.e. Rs 1,50,000 - deduction u\s 80C - deduction u\s 80CCC.
    3. Actual Amount paid under NPS.
  • 80CCD(1B):You can claim an additional deduction of up to Rs. 50,000 under this section for investment in NPS Scheme. This is in addition to 80CCD (1).

  • 80CCD (2): Deduction under this section can be availed by you if you're an employee and your employer makes contribution under NPS Scheme for employees. It is allowed only to the extent of 10% of your salary.

Example:
Case No. Amount Depostited By Salary Including DA Gross Total Income (in case of self-employment) Deduction under section
Employee himself 80CCD (1) Individual himself 80CCD (1) Employer u\s 80CCD (2) 80CCD (1) max 150000/- 80CCD (2)
1 10,000 20,000 5,00,000 Not Applicable 10,000 20,000
2 20,000 3,00,000 Not Applicable 20,000 0
3 30,000 Not Applicable Not Applicable 0 30,000
4 15,000 Not Applicable Not Applicable 0 15,000
5 15,000 2,50,000 Not Applicable 25,000 0
6 15,000 Not Applicable 4,50,000 15,000 0
7 1,50,000 2,50,000 Not Applicable 25,000 0
8 20,000 3,00,000 Not Applicable 0 20,000
9 1,30,000 3,50,000 Not Applicable 0 35,000
10 1,12,500 4,25,000 42,500

Note: In the above example, Deduction u\s 80CCD(1B) is not considered because deduction u/s 80CCD(1B) is available without any additional condition. The deduction is available lower of Amount invested or Rs 50,000/-.


80 CCG: Rajiv Gandhi Equity Scheme for Investments in Equities

If you make any investment in the listed equity shares or listed units of an equity oriented fund specified under the above-mentioned scheme during the previous year, then you can avail deduction under this scheme being lower of the following:

  1. 50% of the amount invested in equity shares or units
  2. Rs 25,000
However, there are certain conditions for availing deduction under this scheme:
  1. Your gross total income for relevant financial year should not exceed Rs 12 Lakhs.
  2. You should be a new retail investor as specified under notified scheme.
  3. Minimum Lock-in period for claiming deduction under this scheme is 3 years from the date of acquisition. So, if you sell/transfer such listed equity shares/listed units of equity oriented funds then deduction allowed earlier will become taxable.

80 RRB: Deduction in respect of Royalty on Patents

If you're a resident of India and a patentee (true and first inventor of invention including co-patentee), then you can claim deduction under this section being lower of the following:

  1. 100% of Royalty Income from patent
  2. Rs 3,00,000

80 QQB: Deduction on Royalty income to Author of certain books

If you're an author (including joint author) of a book, then you can claim deduction under this section being lower of following:

  1. Lumpsum consideration for assignment or grant of any of the interest in copyright of the book and other royalty or copyright fees in respect of such book.
  2. Rs 3,00,000

Note: For the purpose of this section, Books includes work of literary, artistic or scientific nature. However, books doesn't include brochures, commentaries, diaries, guides, journals, magazines, newspapers, pamphlets, text books for schools, tracts and other publications of similar nature, by whatever name they are called.


Section 80D: (Medical Health Insurance)

Medical health insurance is important to cover yourself from financial crisis in case of any medical emergency. This deduction is allowed in respect of Health Insurance premium paid by you or contribution made towards CGHS or payment made for preventive health checkup of yourself, your spouse, dependent children or dependent parents. However, there are certain limits for availing deduction under this section:

Various Cases Maximum Deduction allowed for Health Insurance Premium Total Deduction under 80D
Yourself, spouse & Dependent Children Parents
No family member is over 60 years of age Up to Rs. 25,000 Up to Rs. 25,000 Rs. 50,000
Your parents are over 60 years of age and neither you nor your wife is more than 60 years. Up to Rs. 25,000 Up to Rs. 30,000 Rs. 55,000
You or your wife has attained more than 60 years of age. Up to Rs. 25,000 Up to Rs. 30,000 Rs. 60,000

The above-mentioned limits include a limit of Rs. 5,000 for any expenditure made for the purpose of Preventive Health Checkup.
If any medical expenses are incurred on a Super Senior Citizen (above 80 years of age), it will be considered a part of the limits mentioned above provided that no policy is taken for him/her.

The payment of premium should be made other than cash. However, for preventive health checkup, it can be made in cash also.

Case Premium/Expenses for Senior citizen Amount Max available deduction Allowable deduction Total deduction in case of multiple
1 Yourself, Spouse and Dependent Childrens No 20000 25000 20000 20000
2 Yourself, Spouse and Dependent Childrens yes 28000 30000 28000 28000
3 Yourself, Spouse and Dependent Childrens No 26000 25000 25000 48000
Parents No 23000 25000 23000
4 Yourself, Spouse and Dependent Childrens yes 30000 25000 25000 55000
5 Parents Yes 35000 30000 30000 55000
Super senior citizen yes 20000 30000 20000 20000
6 Yourself, Spouse and Dependent Childrens No 25000 25000 25000 50000
Parents no 32000 25000 25000

Section 80E: Interest on Education Loan

This deduction is allowed in respect of interest that you pay on loan taken for pursuing higher education. This loan may be taken for yourself, your spouse, your children or for any other children for whom you're the legal guardian.

Deduction is available up to a maximum of 8 years. The good news is that there is no monetary restriction on the amount of deduction that can be claimed under this section.


Section 80DD: Deduction in respect of maintenance including medical treatment of a dependent with disability.

You can claim deduction in respect of a dependent person with a disability when you incur expenditure on their training, rehabilitation, medical treatment, payment made to LIC, Unit Trust of India or any other specified scheme or deposit on behalf of such dependent.

The deduction is allowed from the following two amounts:
  1. Rs. 75,000 fixed, in case the dependent has 40% of more disability but less than 80%.
  2. Rs. 1,25,000 fixed, in case the dependent has 80% or more disability.
Notes
  1. Dependent person includes your spouse, children, parents, brothers and sisters. In case of HUF, any member of HUF.
  2. Benefit under this section is available only if the dependent person has not claimed deduction u\s 80U.
  3. A certificate of disability is required from prescribed medical authority.
  4. This is a fixed deduction and not based on actual expenses.
Example
Disability Amount Incurred Allowable deduction Deduction
Normal Disability 20000 75000 75000
Normal Disability 80000 75000 75000
Severe Disability 5000 125000 125000
Severe Disability 150000 125000 125000

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

This deduction can be availed by you in respect of payment for medical treatment of a specified disease or ailment (such as AIDS, cancer or other neurological diseases specified under Rule 11DD). Deduction under this section can be availed for yourself or dependent up to the amount actually paid or Rs. 40,000 (Rs. 60,000 in case of a senior citizen or Rs 80,000 in case of very senior citizen) whichever is less.

This deduction is subject to the following two conditions:
  1. You must mandatorily obtain a prescription for such medical treatment from the prescribed specialist.
  2. The amount of deduction will be reduced by amount, if any `received, in respect of insurance or reimbursement by your employer for the treatment of the person concerned.
Note 1: Dependent person includes your spouse, children, parents, brothers and sisters. And, in case of HUF, any member of HUF. Example:
Disability Amount Incurred Allowable deduction Deduction
Normal Citizen 20000 40000 20000
Normal Citizen 50000 40000 40000
Senior Citizen 25000 60000 25000
Senior Citizen 80000 60000 60000
Super Senior Citizen 4000 80000 4000
Super Senior Citizen 82000 80000 80000

The basic difference between 80DD & 80 DDB is-
80 DD: It is for specified disability of dependent.
80 DDB: It is for treatment of specified diseases of dependent.


80U: Deduction in case of a person with disability

If an individual, is certified by the medical authority or a government doctor to be a person with disability, then he is allowed deduction of Rs. 75,000 under this section. In case the person is certified by the medical authority to be a person with severe disability, then the quantum of deduction allowed under this section will be Rs. 1,25,000. This is a fixed deduction and not based on actual expenses.

Example:
Disability Amount Incurred Allowable deduction Deduction
Normal Disability 20000 75000 75000
Normal Disability 80000 75000 75000
Severe Disability 5000 125000 125000
Severe Disability 150000 125000 125000

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

You're eligible for availing deduction if you don't receive House Rent Allowance (HRA) from your employer or if you're self-employed.

However, deduction would not be allowed in the following cases:
  1. If you, your spouse, minor child or HUF of which you're a member owns any accommodation at the place where you're employed or doing business.
  2. If you own any residential house at the place other than place of your residence, then such property should not be assessed as self-occupied property.
Deduction allowed is lower of the following amount:
  1. Rent paid minus 10% of your adjusted total income
  2. Rs. 2000/- per month
  3. 25% of your adjusted total income

Here, adjusted total income = Gross Total Income (From All Heads) - Long Term Capital Gain - Short Term Capital Gain - Deductions (except deduction under this section).

80GGA: Deduction in respect of certain donations for Scientific Research or Rural Development

If you make any donation for Scientific Research or Rural Development, then you can avail deduction under this section. The whole amount of donation is allowed as deduction without any upper limit. However, cash donations of more than Rs. 10,000 are not allowed under this section.


80GGC: Deduction in respect of contributions given by any person to Political Parties

If you make donations towards any political party or electoral trust, then you can avail deduction under this section of the total amount you pay. However, no deduction is allowed if donation is made in the form of cash. However, local authorities and every artificial judicial person cannot claim deduction under this section.


80TTA: Deduction in respect of interest on deposits in Savings Account

Under this section, you can avail deduction in respect of income by the way of interest on deposits in Savings Bank Accounts of Banks, Co-Operatives Banks or Post Office. The quantum of deduction allowed under this section is Rs. 10,000 or the actual interest earned, whichever is lower. This deduction can be availed by both individual and HUF.


80G: DONATIONS

This deduction is available in respect of donations made by you towards certain specified funds, charitable institutions etc.

For claiming donation under this section following conditions must be fulfilled:
  • The donation should be made in any mode of payment other than cash if it exceeds Rs. 10,000.(For F.Y.2016-17, from F.Y. 2017-18 the limit for cash
  • donations is Rs.2000) Donations in kind are not eligible for deduction under this section.
  • The donation should be made only to specified funds or institutions.

Specified Funds or Institutions can be divided into 4 components for the purpose of this section. Here is a complete lists of charitable trust/institutions for which you can tax tax benefit under section 80G of the Income Tax:

Donations eligible for 100% deduction without qualifying limit:

  1. Prime Minister's National Relief Fund
  2. National Defense Fund set up the Central Government
  3. Prime Minister's Armenia Earthquake Relief Fund
  4. Africa (Public Contributions India) Fund
  5. National Foundation for Communal Harmony
  6. University/Educational Institution of National Eminence approved by Prescribed Authority
  7. Maharashtra Chief Minister's Earthquake Relief Fund
  8. Fund set up by the State Government of Gujarat, for providing relief to Gujarat earthquake victims
  9. Zila Saksharta Samiti
  10. The National Blood Transfusion Council or a State Blood Transfusion Council.
  11. Any fund to provide medical relief to the poor, set up by the State Government.
  12. The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare Fund.
  13. The Andhra Pradesh Chief Minister's Cyclone Relief Fund, 1996
  14. National Illness Assistance Fund
  15. Chief Minister's Relief Fund or Lieutenant Governor's Relief Fund for any State or UT.
  16. National Sports Fund set up the Central Government
  17. National Cultural Fund set up the Central Government
  18. Central Government's Fund for Technology Development & Application
  19. National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities
  20. National Children's Fund (From AY 2014-15)
  21. Swachh Bharat Kosh and Clean Ganga Fund set up by Central government ( Any amount paid in pursuance of Corporate Social Responsibilities as per The Companies Act will not be eligible for deduction) (From AY 2015-16)
  22. National fund for control of drug abuse. (From AY 2016-17)

Donations eligible for 50% deduction of donation amount without qualifying limit:

  1. Jawaharlal Nehru Memorial Fund;
  2. Prime Minister's Drought Relief Fund;
  3. Indira Gandhi Memorial Trust;
  4. Rajiv Gandhi Foundation.

Donations eligible for 100% deduction of donation amount with qualifying limit:

  1. To Government or any approved local authority/institution/association for the purposes of family planning.
  2. 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:

  1. To Government or any approved local authority/institution/association for purposes other than family planning.
  2. Any other fund or institution which fulfills the conditions of section 80G(5)
  3. To any Indian authority for the purpose of satisfying the need for housing accommodation or for planning development of cities, towns villages.
  4. To any corporation (specified under section 10(26BB)) for promoting interest of members of a minority community
  5. 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 for the purpose of this section is 10% of Adjusted Gross Total Income which is;

Gross Total Income

  1. (-) Long Term Capital Gains and Short Term Capital Gains u/s 111A
  2. (-) Deductions from 80C to 80U (except deduction under this section)
  3. (-) Income of NRIs and Foreign companies
  4. (-) Income on which income tax is not payable i.e. Share from AOP.
We hope this information has helped you to save maximum taxes and get maximum income tax refunds at the time of filing your Income Tax Return.

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