6. Tax Deductions explained in detail
Do you know you can reduce your taxable income by 1.5 Lakh just by using section 80C as a deduction method. This is just one method out of 15 ways I will be talking about in this article. I promise you, after reading this article, your view on taxes will be completely different.
Before we go further, its better you know a few terms like taxable income, deductions, exemption to understand what I will be talking about in the below article. If not, you can read the article through the playlist All about tax.
Section 80C, 80CC, 80CCD(1) and 80CCD(2)
Section 80C is the most extensively used and popular one for saving income tax. The Indian government supports a few as the tax saving instruments (PPF, NPS etc.) to encourage us to save and invest towards our retirement. If the income of an individual is from capital gains alone, then Section 80C cannot be used for saving tax. To know more about what is capital gain income, checkout the video in the I button. You can get a maximum of 1.5 lakh deduction under this section. Some of the examples which are eligible under this Section are:
Life insurance premium
Equity Linked Savings Scheme (ELSS)
Employee Provident Fund (EPF)
Annuity/ Pension Schemes
Principal component on home loans
Tuition fees for children
Contribution to PPF Account
Sukanya Samriddhi Account
NSC (National Saving Certificate)
Tax saving Fixed Deposit
Post office time deposits
National Pension Scheme
Under Section 80CCD(1b), an Additional deduction of Rs 50,000 is allowed for amount deposited to NPS account or contribution towards Atal Pension Yojana. Icing on the cake.
Section 24 - Home loan
Another key tax saving tool is the interest paid on home loans. Homeowners have the option to claim up to Rs. 2 lakh as a deduction for interest on home loan for self-occupied property. If the house property is let out, you can claim a deduction for the entire interest for that home loan.
Section 80D- Medical Insurance
You can claim a deduction of Rs.25,000 on insurance for self, spouse and dependent children. An additional deduction for insurance of parents is available up to Rs 25,000, if they are aged less than 60 years. If the parents are aged above 60, the deduction amount is Rs 50,000.
Also, an additional deduction of Rs. 5,000 is allowed for preventive health check.
Section 80DD - Disabled Dependent
Under this section, deduction for Rehabilitation of Handicapped Dependent Relative is available for the following,
a. Expenditure incurred on medical treatment (including nursing), training and rehabilitation of handicapped dependent relative
b. Payment or deposit to specified scheme for maintenance of handicapped dependent relative.
Where disability is 40% or more but less than 80% – fixed deduction of Rs 75,000.
Where there is severe disability (disability is 80% or more) – fixed deduction of Rs 1,25,000.
Keep in mind, to claim this deduction a certificate of disability is required from prescribed medical authority.
Section 80DDB - Medical Expenditure
A deduction up to Rs.40,000 is available for any expense incurred towards treatment of specified medical diseases or ailments for the individual or any of his dependents aged below 60.
In case the expenses incurred is a senior citizen, the individual can claim a deduction up to Rs 1 lakh.
Any reimbursement of medical expenses by an employer shall also be claimed under this section.
Section 80E - Loan for higher studies
You can claim a deduction on the interest on the loan amount. Criteria is that the loan should have been taken from a bank or a financial institution for pursuing higher studies by the individual himself or his spouse or children. One can claim the deduction amount up to 8 assessment years. Even a legal guardian could avail this income tax deduction.
Section 80EE - Home loan
Homeowners can claim an additional deduction of Rs.50,000 for interest component of the home loan EMI. The conditions are:
The loan must not be for more than Rs 35,00,000
The value of the property must not be more than Rs 50,00,000.
The individual must not have any other property registered under his name at the time when the loan is sanctioned.
Section 80G - Donation towards charity
This section offers tax deduction to an individual, who makes donations to charitable organisations. This deduction varies based on the receiving organisation, and can avail deduction of 50% or 100% of the amount donated.
Section 80GGA - Donation Towards scientific research
These are deductions for donations made for scientific research or rural development. It provides tax benefits to donors as well as helps in supporting the scientific and rural development of the country. These donations are eligible for 100% tax deduction. An amount higher than 10,000 should be paid in mean other than cash to avail this deduction and there is no upper limit.