The Income Tax Act of India provides several deductions that taxpayers can claim while filing their Income Tax Returns (ITR). These deductions help reduce the taxpayer’s taxable income, thereby reducing their tax liability.
Section 80C
Section 80C of the Income Tax Act ranks among the most commonly used sections, providing a deduction of up to Rs.1.5 lacs in a financial year. The deduction can be claimed by investing in specific instruments such as Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-Linked Savings Scheme (ELSS), etc. Here are some examples of investments that qualify for deduction under Section 80C:
- Public Provident Fund (PPF) – This government-backed savings scheme provides a guaranteed return on investment. Contributions made towards PPF are eligible for deduction under Section 80C. The minimum investment in PPF is Rs.500/- per year, and the maximum is Rs.1.5 lacs per year.
- National Savings Certificate (NSC) – The National Savings Certificate (NSC) is a government-backed fixed-income investment plan. The interest earned on NSC is eligible for deduction under Section 80C. The investment made in NSC has a lock-in period of 5 years.
- Equity-Linked Savings Scheme (ELSS) – ELSS is a mutual fund scheme that invests predominantly in equity and equity-related securities. The investment made in ELSS is eligible for deduction under Section 80C. The investment made in ELSS has a lock-in period of 3 years.
- Tax-Saving Fixed Deposits (FDs) – Some banks offer tax-saving fixed deposit schemes with a lock-in period of 5 years. The investment made in tax-saving FDs is eligible for deduction under Section 80C.
- Life Insurance Premiums – Section 80C allows deducting premiums for life insurance plans. The deduction can be claimed for premiums paid towards policies taken for self, spouse, or children.
- Home Loan Repayment – The principal component of the EMI paid towards a home loan is eligible for deduction under Section 80C.
It is important to note that the deduction claimed under Section 80C is limited to Rs.1.5 lacs in a financial year. Any investments made beyond this limit will not be eligible for deduction under this section.
Section 80D
Section 80D provides a deduction on the premium paid for health insurance policies. The deduction can be claimed for premiums paid towards policies taken for self, spouse, children, or parents. The maximum deduction under this provision is Rs.25,000/- for plans purchased for self, spouse, or children. An additional deduction of Rs.25,000/- can be claimed for policies taken for parents who are below the age of 60 years. If the parents are over 60, the maximum deduction permitted is Rs.50,000/-.
For example, if a taxpayer pays a premium of Rs.15,000/- towards a health insurance policy for himself and his family and another premium of Rs.20,000/- towards a policy taken for his parents who are above 60 years of age, he can claim a deduction of Rs.15,000/- + Rs.50,000/- = Rs.65,000/- under Section 80D.
Section 80E
The deduction can be taken for a maximum of 8 years or the loan’s term, whichever comes first. The loan must have been taken out for the taxpayer’s, spouse’s, or children’s higher education. The deduction is only available for interest paid, not the principal amount of the loan. The amount of deduction that may be claimed under this section has no maximum limit.
For example, if a taxpayer pays an interest of Rs.50,000/- towards an education loan for his son’s higher education, he can claim a deduction of Rs.50,000/- under Section 80E.
Section 80TTA
Section 80TTA provides a deduction on the interest earned on savings bank accounts. The deduction can be claimed for interest earned on savings accounts held with banks, cooperative societies, and post offices. The maximum deduction claimed under this section is Rs.10,000/- in a financial year.
For example, if a taxpayer earns an interest of Rs.12,000/- on his savings bank account held with a bank, he can claim a deduction of Rs.10,000/- under Section 80TTA.
Section 80G
Section 80G dedicates donations made to certain charitable institutions and funds. The deduction may be claimed for donations made in cash or kind to institutions registered under Section 80G. The deduction amount change based on the type of institution and the donation mode. For example, if a taxpayer donates Rs.10,000/- to a charitable institution registered under Section 80G, he can claim a deduction of Rs.10,000/-.
In addition to the sections mentioned above, several other sections under the Income Tax Act provide deductions to taxpayers. Here are a few more:
- Section 80GGB: This section provides deductions for contributions to political parties. The deductions are available for company contributions and are limited to the amount contributed.
- Section 80GG: This section provides deductions for individuals who do not get any house rent allowance (HRA) from their employer and pay rent for their accommodation. The maximum deduction claimed under this section is Rs.60,000/- per year.
- Section 80U: This section provides for deductions for individuals with disabilities. The deductions vary based on the severity of the disability and range from Rs.75,000/- to Rs.1.25 lakh per year.
Section 24
Section 24 under the Income Tax Act of 1961 pertains to the deduction of interest on borrowed capital for computation of income chargeable under the head “Income from House Property.” It states that a deduction on account of interest on borrowed capital is allowed if the following conditions are met:
- The capital must have been borrowed to acquire, construct, repair, renew, or reconstruct a property.
- The assesses should hold the property to earn rental income or be deemed to be let out.
- The interest should have been paid on the capital borrowed during the previous year.
The deduction allowed under this section is limited to Rs.2,00,000/- for self-occupied properties. The entire amount of interest paid on borrowed capital is allowed as a deduction for properties that are let out or deemed to be let out. However, there is no ceiling on the amount of deduction that can be claimed in such instances.
It is important to note that the deduction under Section 24 is available only if the property is not used for personal purposes. If the property is used for personal purposes, the interest paid on borrowed capital cannot be claimed as a deduction.
Section 54
Section 54EC
One important thing to note is that these deductions have specific conditions and limits to be met to claim them. Taxpayers should carefully read and understand the requirements of each section before claiming any deductions. Additionally, it is crucial to keep proper documentation and proof of the expenses and donations made to support the deductions claimed.
One more point to remember is that these deductions are subject to change every year, depending on the government’s changes in the Income Tax Act. Taxpayers should keep themselves updated with the latest changes and modifications to ensure they can claim all the deductions available to them.
Lastly, it is essential to note that these deductions encourage taxpayers to save and invest in certain areas and support charitable causes. However, making investments or donations to claim these deductions is not advisable. Taxpayers should carefully evaluate their financial goals and objectives and make investments and donations that align with their financial plans.
While filing Income Tax Returns in India, taxpayers should be aware of the various deductions available under different sections of the Income Tax Act. By carefully understanding the conditions and limits of each section and keeping proper documentation, taxpayers can minimize their tax liability and save more on their taxes. It is best to get the assistance of a tax expert or financial planner to ensure that all eligible deductions are claimed and that the tax return is filed accurately and on time.