What are some unusual ways of saving income tax in India?
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- Section 80C: Deductions for certain payments
The deductions provided under Section 80C are one of the most popular and most availed deductions. Under Section 80C, an individual can avail deduction of Rs. 1,50,000, in a financial year, from his / her taxable income for certain payments made towards investments or expenses. These include:
a) Premium payment for a life insurance policy made by an individual on own life, spouse’s life or the life of children
b) Premium payment for a deferred annuity
c) Contribution towards Employees’ Provident Fund (EPF) Scheme
d) Contribution towards Public Provident Fund (PPF) Scheme
e) Contribution by an employee to an approved superannuation fund
f) Contribution towards Sukanya Samriddhi Account (SSA) for girl child
g) Subscription of National Savings Certificate (NSC)
h) Contribution towards a 5 year tax saving fixed deposit of a bank or post office
i) Tuition fees paid by an individual to any university, college, school or other educational institution situated in India, for full time education of any 2 children
j) Payment towards home loan principal repayment, registration fees, stamp duty and any other specified payment for purchase / construction of residential house property
k) Subscription to units of Equity Linked Savings Scheme (ELSS)
l) Deposit in an account under the Senior Citizen Savings Scheme (SCSS)
m) Subscription to notified bonds issued by NABARD
The deduction allowed under Section 80C is a part of the overall deduction allowed under Section 80CCE. As per Section 80CCE, an aggregate deduction of Rs. 1,50,000 can be claimed for investments / payments made under Section 80C, Section 80CCC and Section 80CCD(1).
- Section 80CCC: Deduction for premium paid for annuity plan
Under this section, premium paid up to a maximum of Rs. 1,50,000 in a financial year, for an annuity plan, can be availed as deduction from taxable income. The annuity plan may be purchased from LIC or any other insurer for receiving pension.
The deduction allowed under Section 80CCC is a part of the overall deduction allowed under Section 80CCE. As per Section 80CCE, an aggregate deduction of Rs. 1,50,000 can be claimed for investments / payments made under Section 80C, Section 80CCC and Section 80CCD(1).
- Section 80CCD: Deduction for contribution towards National Pension Scheme (NPS)
a) Section 80CCD(1): Under this section, any contribution made towards a pension scheme (National Pension Scheme – NPS or any other) that has been notified by the Central Government, can be availed as deduction from taxable income. In case of salaried employees (Central Government or private sector), the maximum amount that can be availed as deduction is 10% of salary or Rs. 1,50,000, whichever is less. In case of self-employed people, the maximum amount that can be availed as deduction is 20% of income or Rs. 1,50,000, whichever is less.
The deduction allowed under Section 80CCD(1) is a part of the overall deduction allowed under Section 80CCE. As per Section 80CCE, an aggregate deduction of Rs. 1,50,000 can be claimed for investments / payments made under Section 80C, Section 80CCC and Section 80CCD(1).
b) Section 80CCD(1B): Under this section, any contribution (subject to a maximum of Rs. 50,000 in a financial year) made by an individual towards a pension scheme (National Pension Scheme – NPS or any other) that has been notified by the Central Government, can be availed as deduction from taxable income.
The deduction of Rs. 50,000 under Section 80CCD(1B) can be availed over and above the limit of Rs. 1,50,000 under Section 80CCE. So, in case of contributions made towards National Pension Scheme (NPS), an individual can avail a deduction of Rs. 2,00,000 from taxable income in a financial year: Rs. 1,50,000 under Section 80CCD(1) + Rs. 50,000 under Section 80CCD(1B).
c) Section 80CCD(2): Under this section, any contribution made by the employer to the employee’s pension account (National Pension Scheme or any other scheme notified by the Government), up to a maximum of 10% of the employee’s salary, can be availed as deduction from taxable income by the employee. The employee can avail deduction for the entire amount contributed by the employer in a financial year, subject to a maximum limit of 10% of his / her salary.
The employee can avail deduction for contribution in pension account by employer under Section 80CCD(2) over and above the limit of Rs. 1,50,000 under Section 80CCE and Rs. 50,000 under Section 80CCD(1B).
So, in a financial year, in case of contributions made towards National Pension Scheme (NPS), an individual can avail total deduction as follows:
Rs. 1,50,000 under Section 80CCD(1) + Rs. 50,000 under Section 80CCD(1B) + Contribution made by employer under Section 80CCD(2).
- Section 80D: Deduction for premium paid towards health insurance
Premium paid for self, spouse and dependent children: Under this section, an individual can avail deduction from taxable income for health insurance premium paid for self, spouse and dependent children. The maximum amount that can be claimed as deduction is the actual premium paid or Rs. 25,000, whichever is lower.
If the individual or spouse for whom the health insurance premium is paid is a senior citizen (60 years or above), then the deduction that can be availed is Rs. 50,000 from taxable income. In case of senior citizen, where there is no health insurance, then the deduction of Rs. 50,000 can be availed for medical expenditure.
Premium paid for dependent parents: An individual can avail additional deduction from taxable income for health insurance premium paid for parents. The amount that can be claimed as deduction is the actual premium paid or Rs. 25,000, whichever is lower. In case, one or both the parents are senior citizens (60 years or above), then the deduction that can be availed is Rs. 50,000 from taxable income. In case where parent/s is/are senior citizen/s, and where there is no health insurance, then the deduction of Rs. 50,000 can be availed for medical expenditure.
The health insurance premium amount has to be paid in any mode other than cash.
The deduction limit for senior citizens has been increased to Rs. 50,000 in Budget 2018. Earlier the deduction limit was Rs. 30,000.
Deduction for preventive health check-up: An individual can also avail a deduction of Rs. 5000 from his / her taxable income for payment made towards a preventive health check-up for self, spouse, dependent children and parents. This payment can be made in any mode, including cash. This deduction of Rs. 5,000 is not a separate deduction. It is a part of the overall deduction of Rs. 25,000 or Rs. 50,000 that can be availed under Section 80D.
- Section 24: Deduction for interest repayment on home loan
Under this section, a home loan borrower can avail a deduction from taxable income for interest paid on the home loan. The deduction amount in a financial year can be the actual interest paid or Rs. 2,00,000, whichever is lower. The house should have been acquired or construction completed within five years from the end of the financial year in which the home loan was taken.
For interest paid for the period before the house acquisition or completion of construction, the deduction can be availed separately after the acquisition of the house or completion of construction. This deduction can be availed in equal instalments (20% in each year) over five financial years.
- Section 80TTA: Deduction for interest on deposits in savings account
Under this section, an individual (who is not a senior citizen) can avail a deduction from taxable income on the interest received on a savings account with a bank or a post office or a co-operative bank. The deduction can be availed for the actual amount of interest received or Rs. 10,000, whichever is lower.
The deduction under this section cannot be availed by senior citizens as there is a separate section (80TTB) specifically for them and it is discussed below.
- Section 80TTB: Deduction for interest on deposits for senior citizens
This section has been introduced in Budget 2018. Under this section, senior citizens can avail a deduction from taxable income on the interest received on deposit account/s with a bank or a post office or a co-operative bank. The interest can be on a savings, fixed or recurring deposit account. The deduction can be availed for the actual amount of interest received or Rs. 50,000, whichever is lower. For interest up to Rs. 50,000 in a financial year, there will not be TDS deduction.
- Section 80E: Deduction on interest on loan for higher education
Under this section, an individual can avail deduction from taxable income for interest paid on a loan taken for higher education. The entire interest paid on the loan in a previous year can be availed as deduction from taxable income in the subsequent assessment year. The deduction can be availed every year, until the interest is paid or for eight assessment years, whichever is earlier.
An individual availing deduction under this section can avail the higher education loan for self, spouse, children or the student for whom the individual is a legal guardian. Under this section, “higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Government.
- Section 10(13A): Exemption for House Rent Allowance (HRA)
The house rent allowance (HRA) that an individual gets from the employer for expenditure actually incurred on payment of rent in respect of residential accommodation occupied by him / her, is exempt from income tax up to a specified limit. The HRA amount that can be claimed exempt is the least of the following:
a) The HRA amount actually received
b) Rent paid in excess of 10% of salary
c) 50% of salary if staying in Mumbai, Delhi, Kolkata or Chennai and 40% of salary if staying in any other city
For the above purpose, salary includes basic pay, dearness allowance and commission based on a fixed percentage of turnover achieved by the employee. The employee has to submit rent receipts and other document/s as may be required to claim the exemption.
- Section 10(5): Exemption for Leave Travel Allowance (LTA) or Leave Travel Concession (LTC)
The Leave Travel Allowance (LTA) or Leave Travel Concession (LTC) that an individual gets from the employer for travel expenditure incurred on a vacation when on leave, is exempt from income tax up to a specified limit. The exemption can be availed for travel fare only. The exemption can be availed for travel within India only. The amount that can claimed as exemption will be subject to the following maximum limits, depending on the mode of transport used or available:
a) For journey performed by air: Air economy fare of the national carrier (Indian Airlines or Air India) by the shortest route to the place of destination
b) For journey performed by rail: Air-conditioned first class rail fare by the shortest route to the place of destination
c) Where the travel place is not connected by air or rail: Where a recognised public transport system exists, the first class or deluxe class fare on such transport by the shortest route to the place of destination
To avail the exemption, the individual has to submit proof of actual expenditure incurred for journey performed in the form of copy of tickets and any other documents that may be required. The exemption can be availed for travel fare for self and family (spouse, children). The exemption can also be availed for travel fare for parents, brothers and sisters of the individual, wholly or mainly dependent on the individual.
The exemption can be availed only in respect of two journeys performed in a block of four calendar years. The current block is from 2018-2021.
- Section 80DD: Deduction for maintenance / medical treatment of a dependant person with disability
Under this section, an individual can avail deduction from taxable income for:
a) Incurring any expenditure for the medical treatment, training and rehabilitation of a dependent person with disability or
b) Paying / depositing an amount under a scheme framed by the Life Insurance Corporation (LIC) of India or any other insurer for the maintenance of a dependent person with disability
The maximum amount that can be availed as deduction is Rs. 75,000 from taxable income. In case of a person with severe disability (80% or more of one or more disabilities), the maximum amount that can be availed as deduction is Rs. 1,25,000 from taxable income. For claiming the deduction, the individual has to furnish a copy of the certificate issued by the medical authority in the prescribed form and manner, along with return of income.
The dependent person can be the individual’s (assessee’s) spouse, children, parents, brothers and sisters dependent wholly or mainly on the individual for support and maintenance.
- Section 80DDB: Deduction for medical treatment
Under this section, an individual can avail deduction from taxable income for payment made towards medical treatment for specified diseases / ailments. The medical treatment can be for self or dependent (spouse, children, parents, brothers and sisters dependent wholly or mainly on the individual for support and maintenance).
The maximum deduction that can be availed is Rs. 40,000 for the medical treatment for an individual who is below the age of 60 years (not a senior citizen). In case of a senior citizen, the maximum deduction that can be availed for medical treatment is Rs. 1,00,000. The deduction for the same treatment should not have been availed under any other section of the Income Tax Act.
For the purpose of deduction under this section, Rule 11DD of the Income Tax Rules specifies the list of diseases / ailments and the specialist doctors from whom a prescription has to be obtained for medical treatment.
- Section 80U: Deduction in case of a person with disability
Under this section, an individual can avail deduction from taxable income, if he / she is suffering from specified disability as certified by a medical authority. The maximum deduction allowed is Rs. 75,000 and in case of person with severe disability (person with 80% or more of one or more disabilities) it is Rs. 1,25,000. For availing this deduction, the individual has to submit a copy of the certificate issued by a medical authority in the form and manner as prescribed along with return of income.
For the purpose of deduction under this section, Rule 11A of the Income Tax Rules specifies the medical authority for certifying the disability and the certificate (Form No. 10-IA) to be submitted.
Let us summarise the maximum amount that you can avail as exemption or deduction under various section of the Income Tax Act
- Section 16 (ia): Standard Deduction
The Standard Deduction has been introduced from Budget 2018 and will be applicable for income earned from Financial Year starting 1st April 2018. A salaried individual will be eligible for a deduction of Rs. 40,000 or the amount of salary, whichever is less, from his / her taxable income.
Prior to 2018, an individual was allowed a medical reimbursement of Rs. 15,000 annually for expenditure incurred on medical treatment of self and / or family members. An individual was required to submit medical bills to claim this medical reimbursement. The medical reimbursement amount was exempt from income tax. Individuals, who had transport allowance as part of their salary, were exempted up to Rs. 19,200 annually from income tax under the transport allowance.
After the introduction of Standard Deduction of Rs. 40,000 in Budget 2018, the transport allowance and medical reimbursement tax exemptions will be discontinued.
FM has given tax relief of 25% to professional service providers. For example, if there was TDS of 10% now it would be of 7.5%. Is there such tax relief to salary earners? Thanks.
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No, there is no relief for Salaried employees. The TDS percentage will remain same for them.
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@shefalipatil: Yes there is no such exemptions from Govt. on this! May be we need to wait & see.
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