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Income tax can be defined as the percentage of your income which you pay to the government in order to fund infrastructural development. Taxes account for a major portion of the income which is earned by the Indian government. In most cases these taxes can prove to be very harsh on the taxpayer. Hence the government has made some provisions wherein the taxpayer can save on the tax. Tax deductions as they are popularly known as, help reduce the total burden of the taxable income bringing down your overall tax liability and helping you save on tax. Depending on several factors, you are eligible for the deductions, where limits are set for the different purposes.

Tax Deductions

By increasing your deductions you can reduce taxable income. Let’s take a look at the various investments and forms of expenditure which will help you to avail deductions on your taxable income, making life easier:

1. Life insurance premium: Under section 80C, you are eligible for tax deduction if you pay premium towards life insurance policies for your spouse, children or self. The amount which you receive on maturity of the policy will be free from tax subject to prescribed conditions. The investment in life insurance can be deducted uptoRs. 1,50,000.

2. Bank fixed deposits: If you invest in bank fixed deposits for a time period of 5 years under section 80C of the Income Tax Act, 1961 you will be eligible for tax deduction. However, it is important to note that the interest which accrues on the fixed deposit will be taxable. Make sure that you opt for a FD with a scheduled bank and under a notified scheme.

3. Public Provident Fund:You will get a tax deduction under section 80C if you contribute to the PPF account. One can save up toRs. 1,50,000 in a financial year and save tax.

4. National Savings Certificate or NSC: By investing in NSC you will be eligible for tax deduction. However, the interest earned is taxable in this cumulative scheme.

5. Senior Citizens Scheme: Senior citizens are eligible for tax deduction by investing in this scheme. The interest accrued however is taxable.

6. Retirement Savings plan: By investing in retirement plans, you will benefit from tax deductions. Thus, it is a good idea to invest in the National Pension Scheme. Under this, an individual can avail deduction up to 10% of his salary. In case the individual is self-employed, he can avail deductions up to 10% of the gross income. Additionally, under section 80CCD(1B) an additional tax deduction is provided for an amount of Rs.50.000 which is contributed to the NPS.

7. Employer’s contribution will also be available for deduction up to 10% of the salary without any cap. The total deduction cannot exceed Rs. 1.5 lakhs.

8. Mutual funds and ELSS: If you have plans of saving for long-term you can opt for mutual funds. You will be eligible for tax deductions when you invest in mutual funds.

9. Medical Insurance Premiums: The health insurance premiums that you pay for your spouse, children and self qualify for income tax deductions. Under this section, the deductions allowed are Rs. 25,000 for youngsters and Rs. 50,000 for senior citizens. Under section 80 D, the maximum taxable amount is Rs.1,00,000 if both the assessee and his parents have attained the age of 60 years and above. For very senior citizens who are not eligible for health insurance, a deduction of Rs. 50,000 is allowed for medical expenditure.

10. Preventive health checkups:  The maximum amount allowed is Rs.5000 per family, which lies within the overall limit. This means that if you pay Rs. 20,000 towards mediclaim and undergo check-up which costs Rs.5000, you can avail tax deduction for a total of Rs.25,000 under section 80D.(For senior citizens you can claim upto Rs. 50,000)The additional advantage is that you can pay for the preventive health check-up in cash.

11. Treatment of the disabled dependents: On the medical expense incurred for treatment of disabled dependents you are eligible for tax deduction. The deduction permitted is Rs.75,000 for normal disability and Rs. 1.25 lakhs for severe disability.

12. Charitable Contribution: If you make charitable contributions before 31st December each year, it will qualify for tax deductions. However, deduction is not allowed for donations which exceed Rs. 10,000.

13. Infrastructure Bonds: If you invest in infrastructure bonds you will be eligible for tax deduction. These bonds are issued by infrastructure companies after they have been approved by the government. Investments up to Rs.20,000 qualify for tax deduction. However for long-term secured bonds the limit is over and above 1 lakh. All individuals above the age of 18 years who belong to Hindu Undivided families can invest in these bonds.

14. Post Office Time Deposit: You will qualify for a tax deduction if you invest in a five-year Post office Time Deposit. The interest however is fully taxable.

15. ULIP: It is a good idea to invest in ULIPs as you will be eligible for tax deductions. Smart tax planning is an essential component of good financial planning. In case of ULIPs the premium which you pay is invested in debt, equity and money markets. Subject to certain conditions the premium paid is deducted from the taxable income up to the permissible limit under Section 80 C.

16. Tuition Fees: If you pay fees for full-time education of your children in Indian universities, it qualifies for tax deduction. The limit is up to two children. It is important to note that the tuition fee does not include development fee which is paid towards the educational institution and other donations.

17. Registration charges and stamp duty of a home:You do not have to pay tax for the registration fee and stamp duty while transferring your property.

18. House Rent: This deduction is applicable to salaried taxpayers who do not own a residential accommodation at the place of employment and do not receive HRA. The extent of tax deduction is limited to therent paid minus 10% of the total adjusted salary or Rs.5000 or 25% of the total adjusted income, whichever is the least.

19. Home Loan: First-time home buyers can claim a deduction of Rs. 1,50,000 on home loan interest payments under section 80EEA. However, the stamp duty value should not exceed Rs. 45 lakhs and the loan should have been sanctioned in FY 2019-20. Additionally, the buyer should not have an existing house in his name.

20. Interest paid on education loan: The interest which you pay for an education loan qualifies for tax deduction according to section 80E of the IT Act. Such a loan can be taken by the tax payer either for himself, his spouse or the children for whom he is the local guardian. The tax benefits start from the year the repayment starts and ceases after a period of eight years or when the interest is paid in full by the tax payer; whichever is earlier.

This sums up the list of tax deductions in India. Make the best of tax deductions with careful tax planning. Reduce your taxable income and liabilities as you save on tax.


Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)


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One Comment

  1. RaviK says:

    Have a question regarding eligibility amount under 80C for single premium endowment plan. If I take a plan with a sum assured of Rs. 75,000, maximum amount allowed for deduction u/s 80c will be Rs. 7,500 (10% of sum assured) or premium paid which ever is less, is my understanding correct?

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July 2024