Income Tax Deductions
Budget 2020 has given an option to choose between the existing income tax regime and a new tax regime for the financial year 2020-21.
The new tax regime offers lower tax rates and new tax slabs and simultaneously removes tax exemptions and will result in lower tax outgo for the taxpayer, according new financial budget introduced by the Finance Minister.
Total Income (Rs) | Simplified, optional Tax rate |
Up to Rs 2.5 Lakh | NIL |
From 250,001- Rs 500,000 | 5% |
Rs 500,001- Rs 750,000 | 10% |
From Rs 750,001- Rs 10,00,000 | 15% |
Rs 10,00,001 – Rs 12,50,000 | 20% |
Rs 12, 50,001 – Rs 1500,000 | 25% |
Above Rs 1500,000 | 30% |
If a taxpayer is opting for an existing tax regime then only becomes liable to claim for the following Income Tax Deductions for the financial year 2020-21.
There are three forms of Income Tax Deductions are available to individuals in the Income Tax Act, 1961. All can be claimed simultaneously.
Deduction for Tax Saver fixed deposits that are:
- Fixed Deposits: In the form of PPF, NPS, NSC
- Insurance premium
- Tuition fees or ELSS Funds
Note:
- Under Section 80 C up to 1.5 Lakh saving is allowed.
- Deduction for NPS under Section 80 CCD(1B) is up to is Rs 50,000.
- Deduction for health insurance premium under Section 80D up to Rs 25,000.
Tax Deductions under Section 80 C
- 5 Year Tax Saver Fixed Deposit
- Public Provident Fund (PPF): It is a government- backed saving scheme with a tenure of 15 years.
- ELSS fund: This is a type of mutual fund which invests at least 80% of assets in equity.
- National Saving Certificate: This is a government- backed saving scheme with a tenure of 5 years.
- Senior Citizens Savings Scheme – This is a 5-year savings scheme with a high rate, aimed at senior citizens.
- Sukanya Samriddhi Yojana – This is a government-supported savings scheme available to the parents of a girl child. It has a tenure of 21 years.
- Life Insurance Premiums – These premiums are tax-deductible and can apply to most types of life insurance including term plans, endowment plans, and ULIPs.
- Tuition fees paid for the education of children (max 2 children).
Subsections under Section 80 C which are offering certain deductions
Section 80CC: It is applicable for investment made by the taxpayer in several pension funds being offered by the insurance companies. This deduction is being claimed by the individual taxpayer.
Section 80CCD: Both contribution of employee and employers to the NPS is calculated as 10% of the salary are tax-deductible. A self-employed person can invest up to 20% of income to avail of tax deduction.
Section 80CCD(1B): Voluntarily contribution amount up to 50,000 per annum to NPS are tax deductible under Section 80CCD(1B).
Section 80CCF: This section offers tax deduction benefits to individuals as well as Hindu Undivided Families for subscription of long-term infrastructure bonds. A maximum amount of Rs 20,000 exemption is being given under this section. But this was applicable only till the financial year 2011-12.
Section 80CCG: This section applies to RGESS (Rajiv Gandhi Equity Saving Scheme). Deduction made on those investments by the taxpayer in the equity saving scheme which have been notified by the Central Government. These investments are subjected to a maximum limit of 50% of the investment amount of the taxpayer and a maximum deduction of Rs 25,000. This section is no longer applicable.
Section 80 D : The tax deduction under Section 80D is available for both Hindu Undivided Families and individuals for Health Insurance premiums for self and family. The limit under Section 80D is Rs 25000 for ordinary taxpayers and Rs 50,000 for senior citizens. 80 D deductions are not given in premium payments made in cash.
Section 80DD:The section is available for those individuals who bear the expenditures in taking care of disabled persons. Under Section 80DD a deduction up to Rs 75000 can be claimed and 1.25 Lakh in case, it is a severe disability by such individuals. The Tax deduction is available to both resident individuals as well as HUFs and dependent can be partner children or parents of the taxpayer.
Section 80DDB : This section is applicable where expenditure incurred on medical treatments for diseases like Renal Failure, Cancer and AIDS. Both HUFs and individuals are eligible to claim income tax deductions. The total permissible limit is Rs 40,000 which is available to the taxpayer and if the taxpayer is a senior citizen above the age of 60 years, the maximum limit increases to Rs 100,000.
Section 80E : The deduction applies to interest on loan for a higher education of self or dependent. There is no upper limit on the interest amount, but the deduction is only available for interest paid for 5 years. Also note that this deduction applies to interest and not principal.
Section 80 G : The deduction available on money donated to various charitable organizations. Sub-limits are mentioned below:
- 100% exemptions without limit – Donations to National Defence Fund, Prime Minister’s Relief Fund, National Illness Assistance Fund, etc.
- 100% deductions up to 10% of adjusted for total income donation to local authorities, associations as well as institutions for family planning promotion, for development of sports, etc.
- 50% exemptions without any limits– Donation Prime Minister’s Drought Relief Fund, Rajiv Gandhi Foundation, etc.
- 50% deductions up to 10% of adjusted total income: Donations to religious services, organizations involved in charitable work other than family planning promotion, other institutions involved in charitable works, etc. The organization/institution/NGO you are donating money to, under this section must be registered with the Income Tax Department under Section 80G.
Section 80GG
Resident individual who does not receive any house rent allowance on the amount paid as rent by them are eligible to avail this deduction. The maximum limit under this section is Rs 60,000 per annum.
Subsets of 80GG
Section 80GGA: Section 80GGA: Under this section, the donation given to an institution engaged in scientific research or rural development is entitled to deduction.
Section 80GGB: Under this section, deduction given where the company is indulged in donating to any political parties. There is no maximum deduction limit under this section, but these donations cannot be made in cash, only electronic transfer and cheque is allowed.
Section 80GGC: Deduction on donations made by an individual to a political party or electoral trust. There is no maximum deduction limit under this section, but one cannot make donations in the form of cash, only cheque, and electronic transfer is allowed.
Section 80P
All Cooperative societies who are earning income from banking, fishing, cottage industry, etc. are also eligible to claim tax deductions on their total 100% income. Cooperative societies are earning profit from different businesses like securities, properties or renting warehouses, etc. are also eligible to get the benefit of tax deduction from 50,000 to 1lakh.
Section 80QQB
Indian authors earning profits on royalty through literary, artistic and scientific book sales are eligible for tax exemptions to a total of Rs. 3 lakhs.
Section 80RRB
Indian individuals who earn profits through royalty of their patent rights are eligible to earn tax deductions with a maximum limit of Rs 3 lakh. But here, the patent must be registered after the 1/3/2003 to qualify tax deduction.
Section 80TTA
Interest on savings accounts in banks earned by individuals or Hindu undivided families are also eligible for deduction under Section 80TTA. The maximum deduction limit is Rs 10,000. This section is not applicable for senior citizens, who instead covered by Section 80TTB.
Section 80TTB
Interest on savings accounts and fixed deposits in banks earned by senior citizens is exempt up to Rs 50,000 per annum.
Section 80U
Any resident Indian Taxpayer who is facing any kind of disability such as unsound mind, autism, etc. can claim tax exemptions up to maximum Rs 75000. Individuals with severe disabilities qualify to get a maximum of Rs 1.25 lakh tax deduction subjected to certain conditions.
