Understanding Income Tax Deductions in India: A Detailed Overview of Key Sections

In India, various sections of the Income Tax Act provide opportunities for deductions subtracted from your total taxable income to reduce your tax liability. Here are some commonly claimed deductions and their respective sections.

Section 80C : Investments and Savings

Section 80C allows individuals to claim deductions for investments and expenditures made in specified savings schemes and financial instruments.

Deductions: Up to ₹1.5 lakh per annum on investments and expenses.

Investment Schemes:
From these schemes the amount can be Deducted:

• Life Insurance Premium

• Employee Provident Fund (EPF)

• Public Provident Fund (PPF)

• National Savings Certificates (NSC)

• Equity-Linked Savings Schemes (ELSS)

• Principal repayment on home loan

• Sukanya Samriddhi Yojana (SSY)

Example: Suppose you invest ₹50,000 in a Public Provident Fund (PPF), pay ₹30,000 in life insurance premiums, and repay ₹70,000 towards the principal of your home loan. The total deduction available under Section 80C would be ₹1.5 lakh (the maximum limit), which includes all these investments and expenses.

Section 80D : Health Insurance Premiums

Section 80D provides deductions for premiums paid on health insurance policies. This includes premiums for self, spouse, dependent children, and parents. There are different limits based on whether the insured is a senior citizen or not.

Deductions:

1. For self, spouse, and children: Up to ₹25,000 (₹50,000 for senior citizens aged 60 and above)

2. For parents: Up to ₹25,000 (₹50,000 for senior citizen parents)

Example: If you pay ₹20,000 annually for a health insurance policy for yourself and your family (including your spouse and children), and ₹30,000 for your senior citizen parents, you can claim a total deduction of ₹50,000 (₹20,000 + ₹30,000) under Section 80D.

Section 80E: Interest on Education Loan

Section 80E allows a deduction for interest paid on loans taken for higher education. The loan must be taken for the taxpayer’s own education or that of their spouse, children, or a relative.

Deductions : Full deduction on interest paid on loans taken for higher education, with no upper limit.

Example: If you have taken an education loan and paid ₹40,000 in interest during the financial year, you can claim a deduction of ₹40,000 under Section 80E. This deduction is available for a maximum of 8 years or until the loan is repaid, whichever is earlier.

Section 80G: Donations to Charitable Institutions

Section 80G provides deductions for donations made to charitable organizations or funds specified under this section. The extent of deduction depends on the type of charity and the nature of donation.

Deductions: Donations eligible for 50% or 100% deduction (with or without restriction) depending on the organization.

Example: If you donate ₹10,000 to a charity recognized under Section 80G that qualifies for a 50% deduction, you can claim ₹5,000 as a deduction. The exact percentage of the deduction depends on whether the charity is eligible for 50% or 100% deduction.

Section 80TTA/80TTB: Interest on Savings Accounts and Deposits

Section 80TTA

Section 80TTA allows a deduction of up to ₹10,000 on interest earned from savings accounts with banks, post offices, or cooperative societies.

Deductions: Interest on savings bank accounts, Up to ₹10,000 per year for interest earned on savings accounts.

Example: If you earn ₹12,000 in interest from your savings accounts, you can claim a deduction of ₹10,000 under Section 80TTA. The remaining ₹2,000 is taxable.

Section 80TTB

Section 80TTB provides a higher deduction limit of up to ₹50,000 for senior citizens on interest earned from deposits (including savings accounts, fixed deposits, and recurring deposits).

Deductions: Interest on Deposits for Senior Citizens Up to ₹50,000 per year for interest earned on deposits.

Example: If a senior citizen earns ₹60,000 in interest from various deposits, they can claim a deduction of ₹50,000 under Section 80TTB, with the remaining ₹10,000 being taxable.

Section 24(b): Interest on Home Loan

Section 24(b) allows a deduction for the interest paid on home loans taken for purchasing or constructing a residential property. The maximum deduction allowed is ₹2 lakh for a self-occupied property.

Deductions: Up to ₹2 lakh on interest paid for a home loan for a self-occupied property.

Example: If you pay ₹2.5 lakh in interest on your home loan during the financial year, you can claim a maximum deduction of ₹2 lakh under Section 24(b). The remaining ₹50,000 will be taxable.

Section 80DD : Deduction for Maintenance and Medical Treatment of Disabled Dependents

Section 80DD Allows deductions for medical treatment and maintenance of dependents with disabilities. The deduction limit is ₹75,000 for normal disabilities and ₹1.25 lakh for severe disabilities.

Deductions: Up to ₹75,000 per year for normal disability, and up to ₹1,25,000 per year for severe disability.

Example: If you spend ₹80,000 on the medical treatment of a dependent with a disability, you can claim ₹75,000 under Section 80DD if it's a normal disability, or ₹1.25 lakh if it's a severe disability.

Section 80DDB : Deduction for Medical Expenses on Specified Diseases

Section 80DDB Provides deductions for medical expenses incurred for specified diseases such as cancer or neurological diseases.

Deductions: Up to ₹40,000 per year, and up to ₹1,00,000 per year for senior citizens.

Example: If you spend ₹50,000 on medical expenses for a specified disease, you can claim a deduction of ₹40,000 (or ₹1 lakh if you are a senior citizen).

Section 80CCD(1B) : Additional Deduction for National Pension Scheme (NPS) Contributions

Provides an additional deduction of up to ₹50,000 for contributions to the National Pension Scheme (NPS) beyond the ₹1.5 lakh limit of Section 80C.

Deductions: Up to ₹50,000 per year.

Example: If you contribute ₹60,000 to NPS, you can claim ₹50,000 under Section 80CCD(1B) and the remaining ₹10,000 will be covered under Section 80C.

Section 10(14): Allowances to Employees

Section 10(14) provides exemptions for certain allowances received by employees, which are meant to cover specific expenses incurred during their employment. These allowances are exempt from tax up to a certain limit if they meet the prescribed conditions.

Common Allowances Covered:

1. House Rent Allowance (HRA): Exemption is available for employees living in rented accommodation. The exempt amount is calculated based on the actual rent paid, HRA received, and the city of residence.

2. Transport Allowance: Provides a tax exemption for transport expenses incurred by employees who use their own vehicles for commuting to work. The exemption is up to ₹1,600 per month.

3. Conveyance Allowance: This includes allowances given to employees for commuting between their residence and place of work. The exemption is limited to the amount actually incurred.

Transport Allowance:

• Monthly Transport Allowance Received: ₹2,000

• Exemption Limit: ₹1,600 per month

In this case, the employee can claim an exemption of ₹1,600 per month under Section 10(14). The remaining ₹400 (₹2,000 - ₹1,600) will be taxable.

House Rent Allowance (HRA):

• HRA Received: ₹20,000 per month

• Rent Paid: ₹15,000 per month

• City of Residence: Mumbai (metro city)

Assuming the salary (basic + DA) is ₹50,000 per month:

• 50% of Salary = ₹25,000

• Rent Paid – 10% of Salary = ₹15,000 - ₹5,000 = ₹10,000

The exempt HRA amount is the minimum of the following:

• Actual HRA received: ₹20,000

• Rent Paid – 10% of Salary: ₹10,000

• 50% of Salary: ₹25,000

Here, the exempt HRA amount would be ₹10,000 per month. The remaining ₹10,000 (₹20,000 - ₹10,000) would be taxable.

Section 80RRB: Royalty Income from Patents

Section 80RRB provides a deduction for income received as royalty from patents. This deduction is available to individuals who hold a patent and receive royalty income from it.

Deductions: The deduction under Section 80RRB is limited to ₹3 lakh per annum.

Example: If an individual receives ₹4 lakh as royalty income from a patent, they can claim a deduction of up to ₹3 lakh under Section 80RRB. The remaining ₹1 lakh will be taxable.