Although, a New tax structure is introduced for the individual taxpayers from F.Y 2020-21 onwards with a lower tax slabs, broadly famous as “New Personal Income Tax Regime” or “New Tax Regime” under which individual can pay lower taxes if they forego their deductions & exemptions. Since the tax regime is optional & assessee can choose between the old & new Tax Regime. If you are going with the Old Tax Regime, confusion for which investment to be made for claiming Deduction under Chapter VIA is very common.
In this article, an attempt is made to address the taxpayer’s most asked Question What are the Investments that I can made for claiming Tax Relief?
There are different investments & expenditures which can be claimed as deduction while computing Total Income. Chapter VIA of the Income Tax Act ‘Deductions to be made in computing Total Income’ should must be referred before claiming any amount in Income Tax Return to ensure that the conditions mentioned therein are followed. Some of the most common investments that are made are elaborated more here:
Rent Paid – Generally people are of the misconception that Rent paid can be claimed as HRA Exemption (Section 10(13A)) only to the salaried employees who are receiving HRA component in Salary. However, an amount of Rs. 5,000/- per month is allowed as deduction under Section 80GG in case the assessee’s income is not falling under Section 10(13A). This deduction, however, can not be claimed in any residential accommodation is owned by assessee or his spouse or minor child.
Medical Expenses & Insurances –A deduction for Section 80D can be as high as Rs. 1,00,000. The deduction u/s 80D allowed for making:
| Assessee, Spouse & Dependent Children | Assessee’s Parents | ||
| 1 | 2 | ||
| Payment for medical insurance premium (mode other than cash) /contribution to CGHS | A | Deduction allowed – Rs. 25,000 | Deduction allowed – Rs. 25,000 |
| Payment of medical insurance premium for resident Sr. Citizen – (mode other than cash) | B | Deduction allowed – Rs. 50,000 | Deduction allowed – Rs. 50,000 |
| Payment made for preventive health check up | C | Deduction allowed – Rs. 5,000 | Deduction allowed – Rs. 5,000 |
| Medical expenditure on the health of Resident senior citizen and very senior citizen for whom no amount is paid to effect/keep in force an insurance on the health) (mode of payment other than cash) | D | Deduction allowed – Rs. 50,000 | Deduction allowed – Rs. 50,000 |
| DEDUCTION U/S 80D | CALCULATION AS PER BELOW CONDITIONS | ||
For claiming Deduction u/s 80D:
A1 + C1 can not exceed Rs. 25,000
A2 + C2 can not exceed Rs. 25,000
C1 + C2 can not exceed Rs. 5,000
B1 + D1 can not exceed Rs. 50,000
B2 + D2 can not exceed Rs. 50,000
Medical Treatments: Section 80DD & Section 80DDB also provides deductions in respect of Medical treatments.
Deduction u/s 80DD: In case the assessee is paying for medical treatment of any dependent person with disability, or has deposited any amount for maintenance of any dependent person with disability; An amount of Rs. 75,000 is allowed as deduction in case of Normal disability & Rs. 1,25,000 in case of Severe disability.
Note that, even in case the assessee has incurred less expenditure or deposit, the amount of Rs. 75,000 or Rs. 1,25,000 shall be allowed as deduction.
Dependent can be any of: Spouse, Children, Parents, Brothers or Sisters of the individual. Or Any member of the HUF in case of HUF.
Deduction u/s 80DDB: An amount of Rs. 40,000 or Actual expenses incurred on treatment of specified diseases is allowed as deduction. To obtain the deduction, the assessee has to obtain the prescription for such medical treatment from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist, as may be prescribed.
However, if any amount is received from Insurance company, under an insurance or reimbursed by an employer, then such amount shall be reduced from the deduction under Section 80DDB.
Deduction can be claimed under this section for: Self, spouse, children, parents, brothers and sisters, or Any member of HUF (In case of HUF)
Investments Various investments made can be claimed as deductions under u/s 80C, 80CCC & 80CCD. Majority of people claim deductions from LIC, Tuition fee, PPF, ELSS etc. There are several other options, & we need to identify which is better investment as per your investment or financial goals. A maximum of Rs. 150000 can be claimed u/s 80C, 80CCC & 80CCD collectively. Let us analyse these investments in detail:
Tax Savings Fixed Deposits:
A tax saver FD comes with a lock-in period of 5 years.
Interest earned on FD is taxable
No loan or overdraft facility is available against Tax Saver FD.
Public Provident Fund:
Lock-in period of PPF is 15 Years. However, partial withdrawal of upto 50% of PPF deposits is allowed after completion of 6th financial year.
Interest earned on PPF is exempt and are also higher than Interest on FDs.
Loan facility is also provided subject to certain terms & conditions.
National Saving Certificate:
NSCs are provided by Post Offices and have a lock-in period of 5 years.
Interest earned on NSC is taxable in the year of maturity. The accrued interest every year is also allowed as Deduction u/s 80C considering it to be re-invested in the NSC.
Loans can be availed against NSC from Banks.
Life Insurance Premium
Any policy in the name of Individual/spouse/children taken by the assessee (paid from his own bank account) is allowed as a deduction under Section 80C.
Investment in immediate annuity plans.
Deduction u/s 80CCC is allowed for making investments in Immediate Annuity -Retirement plans. The Annuity plans are beneficial for substituting the income during the retirement life.
Investment in Unit Linked insurance plans.
Contributions to ULIPS are covered in deductions under Section 80C. It’s a combination of insurance & investments in equity & debt. A part of the amount is utilized for life insurance cover and the remaining is invested in market.
Home Loan Principal Payments
As the Interest of Home loan paid is allowed as deduction under Section 24 (upto Rs. 2 Lacs), Similarly the amount paid for principal of Home loan is allowed as deduction under Section 80C upto Rs. 1.50 Lacs
Tuition Fee
Amount paid as tuition fee (& not any other fee) for any two children of such individual is allowed as Deduction u/s 80C, Provided the amount is paid:
i. to any university, college, school or other educational institution situated within India;
ii. for the purpose of full-time education
Other than above mentioned, there are various investment benefits provided by Government for claiming deductions. Eg.,
Equity Linked Savings Scheme,
Contribution to any pension fund set up by any Mutual Fund,
Contribution by an employee to an approved superannuation fund,
subscription to any units of any Mutual Fund,
subscription to any such deposit scheme of, or as a contribution to any such pension fund set up by, the National Housing Bank,
Sum deposited in an account under the Senior Citizens Savings Scheme Rules, 2004 etc.
Educational Expenses Other than Tuition fee already covered under Section 80C, Interest on loan taken on higher education is also allowed as deduction under Section 80E. The Interest is allowed in case the loan is used for the education of the assessee or spouse and children of that assessee or the student for whom the assessee is the legal guardian.
Interest on Loan taken for Residential House Property
A lot of benefits are provided for Home Loans:
– Principal payments of Home Loans – covered under Section 80C (discussed above),
– Interest on Home Loans – Deduction under Section 24(b) upto Rupees Two Lakhs
– Interest on Residential Home Loans – Deduction under Section 80EE upto Rupees Fifty Thousands in case the following conditions are fulfilled:
(i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2016 and ending on the 31st day of March, 2017;
(ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed thirty-five lakh rupees;
(iii) the value of residential house property does not exceed fifty lakh rupees;
(iv) the assessee does not own any residential house property on the date of sanction of loan
It should be noted that deduction under Section 80EE is in addition to deduction under Section 24(b) and benefits under both the sections can be claimed for eligible assessees.
Others
Other than deductions discussed above, there are also other deductions which are available not for the investments made, but for the benefits of others like:
Donations to certain funds, charitable institutions,
Donations for Scientific research or rural development
Contributions to Political Parties etc.
I hope with the above, the query for various tax savings investment decisions will be solved.
Any Query or Suggestion is welcome at caprernajuneja@gmail.com
Disclaimer: The above post is only for the purpose of academic discussion and should not be construed as any legal opinion in any matter whatsoever.
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Very informative and impressive with details regarding income tax deductions.