The Complete Guide to Deduction Under Income Tax and How to Maximize Your Tax Savings for Individuals

What is a Deduction?

Deductions are various claims that can be reduced from total income by which an assessee can reduce the overall tax liability. These claims can include making expenses and investments by the assessee.

Various Deductions available

·       Sec 80C : Specified Investment

o   Assessee eligible for deduction: Individual and HUF

o   Deduction Available: Maximum of Rs 1,50,000

o   Eligible Investments:

§  Life Insurance Premium (LIP): LIP paid for self, spouse, children in case of individual and any of members in case of HUF shall be eligible for deduction. If the policy is issued before 1-04-2012, the amount eligible for deduction shall be premium paid or 20% of sum assured, whichever is lower. If policy issued on or after 01-04-2012, the amount eligible for deduction shall be premium paid or 10% of sum assure, whichever is lower. However in case of policy issued on or after 01-04-2013 for person with disability u/s 80U or person suffering from specified disease u/s 80DDB, the amount eligible for deduction shall be premium paid or 15% of sum assured, whichever is lower.

Note : If in any PY, an assessee terminates his LIP or has not paid premium after 2 years, then all deduction allowed shall be deemed to income in the year of such violation

§  Amount deposited in Public Provident Fund (PPF) for self, spouse, children in case of individual and any of member in case of HUF shall be eligible for deduction.

§  Employee's Contribution to Statutory provident fund, Recognised provident fund or Approved superannuation fund shall be eligible for deduction.

§  Amount invested in NSC as well as interest accrued on NSC.

§  Repayment of loan taken from bank and financial institution for purchase or construction of house.

Note : If in any PY, transfer house before 5 years from the end of FY in which possession is obtained, then all deduction allowed shall be deemed to income in the year of such violation

§  Fixed deposit in a scheduled bank or post office for 5 years or more.

Note : If in any PY, amount withdrawn from FD before 5 years, then all deduction allowed shall be deemed to income in the year of such violation

§  Tuition fees paid for education of children. Maximum deduction eligible for 2 children for full time education in India.

§  Deposit in Notified bonds of NABARD.

§  Deposit in senior citizen scheme.

Note : If in any PY, amount withdrawn from senior citizen saving scheme before 5 years, then all deduction allowed shall be deemed to income in the year of such violation

§  Contribution towards Unit Linked Insurance Plan.

Note :  If in any PY, an assessee terminates ULIP or has not paid premium for 5 years, then all deduction allowed shall be deemed to income in the year of such violation

§  Notified units of Mutual Funds or UTI.

§  Notified pension scheme of Mutual Funds or UTI.

§  Deposit in Sukanya Samridhi scheme account (for any girl child of individual or girl child for whom such individual is a legal guardian).

§  Stamp Duty, Registration fee for acquisition for acquisition of house property.

§  By employee of CG as a contribution to a specified account of the pension scheme for a fix period of 3 years or more.

 

·       Sec 80CCC : Contribution to Pension Fund of LIC or other Insurance Co

Individual shall be eligible for maximum deduction of Rs 1,50,000.

 

·       Sec 80CCD : Contribution to Pension scheme of Central Govt/Mew Pension Scheme/  Atal Pension Yojana

o   Eligible Assessee : Individual

o   Eligible Deduction Amount :

§  Sec 80CCD(1) : In case  of salaried employee amount of eligible deduction shall be employees contribution or 10% of salary, whichever is lower. In case of Other Individuals amount of eligible deduction shall be assessees contribution or 20% of GTI, whichever is lower.

§  Sec 80CCD(1B) : Additional amount of Rs 50,000 shall be eligible as deduction other than contribution covered u/s 80CCD(1).

For Example: Assessee’s contribution towards NPS Rs 1,70,000 and Salary is Rs 15,00,000. In this case assesse can claim Rs 1,50,000(lower of 10 % of Rs 15,00,000 or Rs 1,70,000, whichever is lower) u/s 80CCD(1) and Rs 20,000 (1,70,000 – 1,50,000) u/s Sec 80CCD(1B).

§  Sec 80CCD(2) : Employer’s contribution to NPS for the benefit of Employee shall be first taxable in hands of Employee and gets deduction u/s 80CCD(2). Amount of deduction available shall be Employer’s Contribution or 10 % of Salary, whichever is lower. However in case of contribution by Central government 14% shall be considered instead of 10%.

 

·       Sec 80CCE : Aggregate deduction u/s 80C,80CCC and 80 CCD(1) is restricted to Maximum Rs 1,50,000.

 

·       Sec 80D : Deduction in respect of Medical Insurance Premium, Central Govt. Health Scheme, Preventive Health checkup & Medical Treatment

o   Eligible Assessee : Individual & HUF

o   Expenses meet for Self, Spouse, Parents & dependent children by Individual and Any Members of HUF by HUF

Amount of Deduction	Individual		HUF
	Self, spouse, Dependent Children	Parents	Members
a)Medical Insurance Premium b)CG Health scheme c)Preventive Health Check-up General deduction a+b+c (+) Additional deduction (when medical insurance policy taken on the Life of senior Citizen) Age 60 or more	Yes Yes Yes Max Rs 25,000     Max Rs 25,000	Yes No Yes Max Rs 25,000     Max Rs 25,000	Yes No No Max Rs 25,000     Max Rs 25,000
Medical Expenditure of Senior Citizen (Age 60 or more) & Mediclaim premium not paid for such person.	Max Rs 50,000	Max Rs 50,000	Max Rs 50,000
Maximum Deduction in total of above	Max Rs 50,000	Max Rs 50,000	Max Rs 50,000

 

o   Mode of payment shall be any mode other cash but payment of preventive health checkup can be made in cash.

o   Aggregate payment for preventive health checkup of self, spouse, dependent children & parents cannot exceed Rs 5,000.

o   Where the medical insurance premium is paid in lumpsum for more than 1 year, deduction for each year shall be lumpsum premium divided by PY’s in which insurance in force.

 

 

·       Sec 80DD : Deduction in respect of Medical treatment & Maintenance of Handicapped dependent relative

o   Resident Individual and HUF shall be eligible for deduction of Rs 75,000 in case of Normal disability and Rs 1,25,000 in case of Severe disability.

o   Relative include Individual’s spouse, brother, sister, children, mother, father. In case of HUF, any member of HUF.

·       Sec 80DDB: Deduction in respect of Medical treatment of specified Disease

o   Resident Individual and HUF shall be eligible for deduction of Actual expenses for treatment or Rs 40,000 whichever is lower reduced by insurance claim. In case of senior citizen Rs 1,00,000 limit shall be eligible instead of Rs 40,000.

o   Such expenditure shall be incurred on the treatment of specified diseases for self, dependent relative which shall include spouse, children, parents, bother, sister and any depended member in case of HUF

 

• Sec 80U: Deduction for handicapped Assessee
• Residential Individual shall be eligible for deduction of Rs 75,000. However in case severe disability he shall be eligible for deduction of Rs 1,25,000 instead of Rs 75,000.

• Sec 80E: Deduction in respect of Interest on loan for Higher education in India or abroad (any course after XII)
• Individual shall be eligible for deduction of interest amount for a period of 8 consecutive years starting from the year in which assesse starts paying interest.
• Deduction shall eligible if loan taken for the education of self, spouse, children and any student from whom assesse is a legal guardian.

•  Sec 80EE: Deduction in respect of Interest on Housing loan
• Individual shall be eligible for deduction of maximum Rs 50,000, if the loan taken from bank or financial institution for acquisition of residential property for a purchase price up to Rs 50 lakhs.
• Loan should be sanction between 1-4-2016 to 31-3-2017 and loan amount should be up to Rs 35 lakhs.
• Assessee shall not own any other residential house on date of sanction of loan.
• First claim the deduction u/s 24(b) of house property.

• Sec 80EEA: Deduction in respect of Interest on Housing loan
• Individual(other than covered in 80EE) shall be eligible for deduction of maximum Rs 1,50,000, if the loan taken from bank or financial institution for acquisition of residential property of a stamp duty value of house property up to Rs 45 lakhs.
• Loan should be sanction between 1-4-2019 to 31-3-2022
• Assessee shall not own any other residential house on date of sanction of loan.
• First claim the deduction u/s 24(b) of house property.

• Sec 80EEB: Deduction in respect of Interest on Electrical Vehicle loan
• Individual shall be eligible for deduction of maximum Rs 1,50,000, if the loan taken from bank or financial institution including NBFC for purchase of electric vehicle.
• Loan should be sanction between 1-4-2019 to 31-3-2023

• Sec 80G: Donation
• Assessee eligible for deduction: All Assessee
• Eligible Donation:

Category of Donation	Amount of Deduction available
Jawaharlal Nehru Memorial Fund	50% of Doantion
Prime Minister's Drought Relief Fund.	50% of Doantion
Indira Gandhi Memorial Trust.	50% of Doantion
Rajiv Gandhi Foundation.	50% of Doantion
National Defence Fund set up by the Central Government	100% of Donation
Prime Minister’s National Relief Fund	100% of Donation
National Foundation for Communal Harmony	100% of Donation
National Sports Fund	100% of Donation
National Cultural Fund	100% of Donation
National Children’s Fund	100% of Donation
Fund for Technology Development and Application	100% of Donation
Clean Ganga Fund (applicable from FY 2014-15)	100% of Donation
National Fund for Control of Drug Abuse (applicable from FY 2015-16)	100% of Donation
Swachh Bharat Kosh (applicable from FY 2014-15)	100% of Donation
Fund set up by a state government for the medical relief to the poor	100% of Donation
An approved university/educational institution of National eminence	100% of Donation
Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district	100% of Donation

 

Donation with limited deduction (100%) u/s 80G

1.     Donations to the government or any approved local authority, institution or association to be utilised to promote family planning

2.     Donation by a company to the Indian Olympic Association or any other notified association or institution established in India to develop infrastructure for sports and games in India or sponsor sports and games in India.

Donation with limited deduction (50%) u/s 80G

3.     Government or any local authority, to be utilised for any charitable purpose other than promoting family planning.

4.     Any authority constituted in India to deal with and satisfy the need for housing accommodation or the purpose of planning, development or improvement of cities, towns, villages or both.

5.     Any corporation referred to in Section 10(26BB) for promoting the interest of the minority community.

6.     For repairs or renovation of any notified temple, mosque, gurudwara, church, or other places.

Calculation of limited deduction:

Eligible donation shall be limited to (100% in case of 1 and 2, 50% of in case of 3 to 6):

Total Donation made or 10 % of ATI* whichever is lower.

*ATI – Gross total income excluding income taxable at special rate reduced by all deduction except 80G

Note : Deduction is not allowed if donation made in cash is more than Rs 2000.

 

• Sec 80GG: Rent paid of House property (HRA not received)

Individual shall be eligible for deduction of Rs 5000 or 25 % of Adj GTI or rent paid less 10% of Adj GTI, whichever is lower. However assesse or his spouse or minor child or HUF should not won any house at the place of duty. Adjusted GTI means GTI reduced by all deduction except 80GG