A deduction from an Income Tax point of view, is the investment / expenditure made by you that help you save taxes.So, the income tax deduction reduce your gross income(means the income on which is to be paid).Thereby,reducing your tax on your 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. 5,000*||Rs. 12,500*|
Income tax department allows deductions specified in the Chapter VI-A of the Income Tax Act. So, here’s the complete list of all the Income Tax Deductions as per the Income Tax that you can use to reduce your tax outgo (depending on your tax situation):
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:
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:
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 The PPF account matures after 15 years but part of the money can be withdrawn after 5 years.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:
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|
Sukanya Samriddhi Scheme In lines with the Beti Bachao, Beti Padhao 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 FDR’s (Known as 5 Year Tax Saving FDR’s) Almost everyone invests in Bank FDR’s 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 FDR’s (Post Office Time Deposit Scheme) Similar to Bank FDR’s, 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.
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:
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 for 80CCC (Refer Note)||Deduction u\s 80CCC|
Note: Limit available means: Rs 1,50,000 - Investment u\s 80C =
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.
|Case No.||Amount Deposited 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)|
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/-.
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:
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:
If you're an author (including joint author) of a book, then you can claim deduction under this section being lower of following:
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.
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. 30,000||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|
|4||Yourself, Spouse and Dependent Childrens||Yes||30000||30000||30000||30000|
|5||Yourself, Spouse and Dependent Childrens||Yes||35000||30000||30000||50000|
|(Parents) Super senior citizen||Yes||20000||30000||20000|
|6||Yourself, Spouse and Dependent Childrens||No||25000||25000||25000||50000|
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.
Changes in Budget 2018 :- For Senior citizen, limit has been increased from Rs. 30,000 to Rs.50,000 (Aggeregate deduction if both parents and individual are senior citizen will be Rs. 1,00,000/-)
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:
|Disability||Amount Incurred||Allowable deduction||Deduction|
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:
|Disability||Amount Incurred||Allowable deduction||Deduction|
|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.
Changes in Budget 2018 In this budget, under deduction u/s 80DDB, the class of super senior citizen has been submerged into senior citizen raising the limit of Rs.60,000/80,000 to Rs. 100,000 or the amount incurred whichever is lower.
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|
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:
Here, adjusted total income = Gross Total Income (From All Heads) - Long Term Capital Gain - Short Term Capital Gain - Deductions (except deduction under this section).
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.
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.
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.
Insert a new section from Budget 2018 80TTB so as to allow a deduction upto Rs 50,000/- in respect of interest income from deposits held by senior citizens. However, no deduction under section 80TTA shall be allowed in these cases.
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 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: