Taxes are an integral component in our country, with them accounting for a major portion of the income earned by the government, income which is utilised to provide certain basic provisions to citizens. Individuals who earn more than a certain amount are expected to pay taxes, as per the existing tax slabs. While these taxes can be harsh on the bank balance of a taxpayer, the government also provides certain provisions wherein one can save tax. Tax deductions can help one reduce the taxable income, lowering their overall tax liability and thereby helping them save on taxes. The deduction one is eligible for depends on a number of factors, with different limits set for different purposes.
What is Tax Deduction?
Tax deduction helps in reducing your taxable income. It decreases your overall tax liabilities and helps you save tax. However, depending on the type of tax deduction you claim, the amount of deduction varies. You can claim tax deduction for amounts spent in tuition fees, medical expenses and charitable contributions. Also, you can invest in various schemes such as life insurance plans, retirement savings schemes, and national savings schemes etc. to get tax deductions. The government of India offers tax exemptions for various expenses incurred in different activities to encourage individuals and commercial institutions take part in activities having social benefits.
A number of day-to-day expenditures qualify for deductions, with information about them being crucial to help us save money. Tax deduction can be claimed on money spent for education, medical expenses, charitable contributions, investments in insurance, retirement schemes, etc. These deductions have been put in place to encourage members of the society to participate in certain useful activities, helping everyone involved in the process.
Tax Deductions under Section 80C:
Section 80C of the Income Tax Act provides provisions for tax deductions on a number of payments, with both individuals and Hindu Undivided Families eligible for these deductions. Eligible taxpayers can claim deductions to the tune of Rs 1.5 lakh per year under Section 80C, with this amount being a combination of deductions available under Sections 80 C, 80 CCC and 80 CCD.
Some of the popular investments which are eligible for this tax deduction are mentioned below.
- Payment made towards life insurance policies (for self, spouse or children)
- Payment made towards a superannuation/provident fund
- Tuition fees paid to educate a maximum of two children
- Payments made towards construction or purchase of a residential property
- Payments issued towards a fixed deposit with a minimum tenure of 5 years
This section provides for a number of additional deductions like investment in mutual funds, senior citizens saving schemes, purchase of NABARD bonds, etc.
Subsections under Section 80C:
Section 80C has an exhaustive list of deductions an individual is eligible for, which have led to the creation of suitable sub-sections to provide clarity to taxpayers.
- Section 80 CCC: Section 80 CCC of the Income Tax Act provides scope for tax deductions on investment in pension funds. These pension funds could be from any insurer and a maximum deduction of Rs 1.5 lakh can be claimed under it. This deduction can be claimed only by individual taxpayers.
- Section 80 CCD: Section 80 CCD aims to encourage the habit of savings among individuals, providing them an incentive for investing in pension schemes which are notified by the Central Government. Contributions made by an individual and his/her employer, both are eligible for tax deduction, subject to the deduction being less than 10% of the salary of the person. Only individual taxpayers are eligible for this deduction.
- Section 80 CCF: Open to both Hindu Undivided Families and Individuals, Section 80 CCF contains provisions for tax deductions on subscription of long-term infrastructure bonds which have been notified by the government. One can claim a maximum deduction of Rs 20,000 under this Section.
- Section 80 CCG: Section 80 CCG of the Income Tax Act permits a maximum deduction of Rs 25,000 per year, with specified individual residents eligible for this deduction. Investments in equity savings schemes notified by the government are permitted for deductions, subject to the limit being 50% of the amount invested.
Tax Deductions under Section 80D:
Section 80D of the Income Tax Act permits deductions on amounts spent by an individual towards the premium of a health insurance policy. This includes payment made on behalf of a spouse, children, parents or self to a Central Government health plan. An amount of Rs 15,000 can be claimed as deduction when paid towards the insurance for spouse, dependent children or self, while this amount is Rs 30,000 (Union Budget 2017) if the person is over the age of 60 years.
On February 1, 2018, Finance Minister Arun Jaitley presented the Union Budget 2018 with a few changes in the tax deductions applicable for senior citizens. Under Section 80D, income tax deduction limit for senior citizens has been increased to Rs.50,000 for medical expenditure.
Both individuals and Hindu Undivided Families are eligible for this deduction, subject to the payment being made in modes other than cash.
Subsections under Section 80D:
Section 80D is further subdivided into two sub-sections, offering clarity on the benefits available to taxpayers.
- Section 80DD: Section 80DD provides provisions for tax deductions in two cases, with the permitted deduction being Rs 75,000 for normal disability and Rs 1.25 lakh if it is a severe disability. This deduction can be claimed in case of the following expenditures.
- On payments made towards the treatment of dependants with disability
- Amount paid as premium to purchase or maintain an insurance policy for such dependant
The permitted deduction is Rs 75,000 for normal disability and Rs 1.25 lakh for a severe disability. Both Hindu Undivided Families and resident individuals are eligible for this deduction. The dependant, in this case can be either a spouse, sibling, parents or children.
- Section 80DDB: Section 80DDB can be utilised by HUFs and resident individuals and provides provisions for deductions on the expense incurred by an individual/family towards medical treatment of certain diseases. The permitted deduction is limited to Rs 40,000, which can be increased to Rs 60,000 (Union Budget 2015) if the treatment is for a senior citizen.The deduction under Section 80DDB for senior citizens and very senior citizens has been increased to Rs.1 lakh in Union Budget 2018.
Tax Deductions under Section 80E:
Under Section 80E of the Income Tax Act has been designed to ensure that educating oneself doesn’t become an additional tax burden. Under this provision, taxpayers are eligible for tax deductions on the interest repayment of a loan taken to pursue higher education. This loan can be availed either by the taxpayer himself/herself or to sponsor the education of his/her ward/child. Only individuals are eligible for this deduction, with loans taken from approved charitable organisations and financial institutions permitted for tax benefits.
Subsections of Section 80E:
- Section 80EE: Only individual taxpayers are eligible for deductions under Section 80EE, with the interest repayment of a loan taken by them to buy a residential property qualifying for deductions. The maximum deduction permitted under this section is Rs 3 lakhs.
Tax Deductions under Section 80G:
Section 80G encourages taxpayers to donate to funds and charitable institutions, offering tax benefits on monetary donations. All assessees are eligible for this deduction, subject to them providing proof of payment, with the limit of deductions decided based on a few factors.
- 100% deductions without any limit: Donations to funds like National Defence Fund, Prime Minister’s Relief Fund, National Illness Assistance Fund, etc. qualify for 100% deduction on the amount donated.
- 100% deduction with qualifying limits: Donations to local authorities, associations or institutes to promote family planning and development of sports qualify for 100% deduction, subject to certain qualifying limits.
- 50% deduction without qualifying limits: Donations to funds like the PMs Drought Relief fund, Rajiv Gandhi Foundation, etc. are eligible for 50% deduction.
- 50% deduction with qualifying limit: Donations to religious organisations, local authorities for purposes apart from family planning and other charitable institutes are eligible for 50% deduction, subject to certain qualifying limits.
The qualifying limit refers to 10% of the gross total income of a taxpayer.
Subsections of Section 80G:
Under Section 80G has been further subdivided into four sections to simplify understanding.
- Section 80GG: Individual taxpayers who do not receive house rent allowance are eligible for this deduction on the rent paid by them, subject to a maximum deduction equivalent to 25% of their total income or Rs 2,000 a month. The lower of these options can be claimed as deduction.
- Section 80GGA: Tax deductions under this section can be availed by all assessees, subject to them not having any income through profit or gain from a business or profession. Donations by such members to enhance social/scientific/statistical research or towards the National Urban Poverty Eradication Fund are eligible for tax benefits.
- Section 80GGB: Tax deductions under this section can be availed by Indian Companies only, with the amount donated by them to a political party or electoral trust qualifying for deductions.
- Section 80GGC: Under this section, funds donated/contributed by an assessee to a political party or electoral trust are eligible for deduction. Local authorities and artificial juridical persons are not entitled to the tax deductions available under Section 80GGC.
Tax Deductions under Section 80 IA:
Section 80 IA provides an avenue for all taxpaying assessees to claim tax deduction on the profits generated through industrial activities. These industrial undertakings can be related to telecommunication, power generation, industrial parks, SEZs, etc.
The following subsections are related to Section 80-IA
- Section 80 IAB: Section 80 IAB can be used by SEZ developers, who can claim tax deductions on their profits through development of Special Economic Zones. These SEZs need to be notified after 1/4/2005 in order for them to be eligible for tax deductions.
- Section 80-IB: Provisions of section 80-IB can be used by all assessees who have profits from hotels, ships, multiplex theatres, cold storage plants, housing projects, scientific research and development, convention centres, etc.
- Section 80-IC: Section 80 IC can be used by all assessees who have profits from states categorised as special. These include Assam, Manipur, Meghalaya, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Mizoram, Tripura and Nagaland.
- Section 80-ID: All assessees who have profits or gain from hotels and convention centres are eligible for deduction under this section, subject to their establishments being located in certain specified areas.
- Section 80-IE: All assessees who have undertakings in North-East India are eligible for deductions under this Section, subject to certain conditions.
Tax Deductions under Section 80J:
Section 80J of the Income Tax Act was amended to include two subsections, 80JJA and 80 JJAA
- Section 80 JJA: Section 80 JJA relates to deductions permitted on profits and gains from assessees who are in the business of processing/treating and collecting bio-degradable waste to produce biological products like bio-fertilizers, bio-pesticides, bio-gas, etc. All assessees who deal with this are eligible for deductions under this section. Such assessees can claim deduction equivalent to 100% of their profits for 5 successive assessment years since the time their business started.
- Section 80 JJAA: Deductions under Section 80 JJAA can be claimed by Indian companies which have profits from the manufacture of goods in factories. Deductions equivalent to 30% of the salary of new full time employees for a period of 3 assessment years can be claimed. A chartered accountant should audit the accounts of such companies and submit a report showing the returns. Employees who are taken on a contract basis for a period less than 300 days in the preceding year or those who work in managerial or administrative posts do not qualify for deductions.
Tax Deduction under Section 80LA:
Deductions under Section 80LA can be availed by Scheduled Banks which have offshore banking units in Special Economic Zones, entities of International Financial Services Centres and banks which have been established outside India, in accordance to the laws of a foreign nation. These assessees are eligible for deductions equivalent to 100% of the income for the first 5 years, and 50% of income generated through such transactions for the next 5 years, subject to the rules of the land.
Such entities should have relevant permission, either under the SEBI Act, Banking Regulation Act or registration under any other relevant law.
Tax Deduction under Section 80P:
Section 80P caters to cooperative societies, offering tax deductions on their income, subject to certain conditions. 100% deduction is permitted to cooperative societies which have incomes through cottage industries, fishing, banking, sale of agricultural harvest grown by members and milk supplied by members to milk cooperative societies.
Cooperative societies which are involved in other forms of business are eligible for deductions ranging between Rs 50,000 and Rs 1 lakh, depending on the type of work they are involved in.
Deductions which can be claimed by all cooperative societies are listed below.
- Income which a cooperative society makes by renting out warehouses
- Income derived through interest on money lent to other societies
- Income earned through interest from securities or properties
Tax Deduction under Section 80QQB:
Section 80QQB permits tax deductions on royalty earned from sale of books. Only resident Indian authors are eligible to claim deductions under this section, with the maximum limit set at Rs 3 lakhs. Royalty on literary, artistic and scientific books are tax deductible, whereas royalties from textbooks, journals, diaries, etc. do not qualify for tax benefits. In case of an author getting royalties from abroad, the said amount should be brought into the country within a specified time period in order to avail tax benefits.
Tax Deduction under Section 80RRB:
Section 80RRB offers tax incentives to patent holders, providing tax relief to resident individuals who receive an income by means of royalty on their patent. Royalty to the tune of Rs 3 lakhs can be claimed as deductions, subject to the patent being registered after 31/3/2003. Individuals who receive a royalty from foreign shores need to bring said amount to the country within a specific time period in order to be eligible for tax deductions on such royalty.
Tax Deduction under Section 80TTA:
Deductions under Section 80TTA can be claimed by Hindu Undivided Families and Individual taxpayers. This section permits deductions to the tune of Rs 10,000 every year on the interest earned on money invested in bank savings accounts in the country.
Tax Deduction under Section 80U:
Tax deductions under Section 80U can be claimed only by resident individual taxpayers who have disabilities. Individuals who have been certified by relevant medical authorities to be a Person With Disability can claim a maximum deduction of Rs 75,000 per year. Individuals who have severe disabilities are entitled to a maximum deduction of Rs 1.25 lakh, subject to them meeting certain criteria. Some of the disabilities which classify for tax benefits are autism, mental retardation, cerebral palsy, etc.
Summary of Tax Deductions Available under Section 80C to 80U:
|Section||Permissible limit (maximum)||Eligible Claimants|
|80 C||Rs 1.5 lakh (aggregate of 80C, 80CCC and 80CCD)||Individuals/Hindu Undivided Families|
|80 CCC||Rs 1.5 lakh (aggregate of 80C, 80CCC and 80CCD)||Individuals|
|80 CCD||Rs 1.5 lakh (aggregate of 80C, 80CCC and 80CCD)||Individuals|
|80 CCF||Rs 20,000||Individuals/Hindu Undivided Families|
• RS 50,000 for senior citizens
• Rs 25,000 for other individuals
|Individuals/Hindu Undivided Families|
|80 D||RS 20,000||Individuals/Hindu Undivided Families|
||Resident Individuals/Hindu Undivided Families|
• Rs 1 lakh for senior citizens
• Rs 40,000 for others
|Resident Individuals/Hindu Undivided Families|
|80 E||No limit mentioned||Individuals|
|80 EE||Rs 3 lakh||Individuals|
|80 G||Different limits based on donation||All assessees|
|80 GG||Rs 2,000 per month||Individuals who do not get HRA|
|80 GGA||Depends on quantum of donation||All assessees who do not have income from profit or gains from a business/profession|
|80 GGB||Depends on quantum of donation||Indian companies|
|80 GGC||Depends on quantum of donation||All assesses apart from local/Artificial judicial authorities who are funded by the government|
|80 IA||No maximum limit defined||All assessees|
|80 IAB||No maximum limit defined||All assessees who are SEZ developers|
|80 IB||No maximum limit defined||All assessees|
|80 IC||No maximum limit defined||All assessees|
|80 ID||No maximum limit defined||All assessees|
|80 IE||No maximum limit defined||All assessees|
|80 JJA||All profits earned for first 5 years||All assessees|
|80 JJAA||30% of increased wages||Indian companies which have income from profit/gains|
|80 LA||Portion of their income||Scheduled banks, IFSCs, banks established outside India|
|80 P||Portion of their income||Cooperative societies|
|80 QQB||Rs 3 lakh||Authors – resident individuals|
|80 RRB||Rs 3 lakh||Resident individuals|
|80 TTA||Rs 10,000 per year||Individuals/Hindu Undivided Families|
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- Form 24Q,26Q,27Q,27EQ,27D
- Tax Sections
- Section 148
- Section 154
- Section 194C
- Section 194J
- Section 195
- Section 40A2
- Section 40A3
- Section 43B
- Section 44AB
- Section 54EC
- Section 80CCC
- Section 80CCD
- Section 80D
- Section 80DD
- Section 80EE
- Section 44AD
- Section 80DDB
- Section 80GG
- Section 80GGC
- Section 80TTA
- Section 80GGB
- Section 87A
- Section 80U
- Section 80E
- Section 80CCG
- Section 80CCF
- Section 44AA
- Section 276B
- Section 24
- Section 192A
- Section 139
- Section 80RRB
- Section 44AE
- Section 94A
- Section 194H
- Section 80C to 80U
- Section 44Ad and Section 44AE
- Deductions Under 80C
- Deduction Under Section 80G
- Section 80DD - Deductions On Medical Expenditure
- Section 234A, 234B And 234C
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