Note on Income Tax Deductions
Deductions on Investments
Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total income. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income through section 80C. This deduction is allowed to an Individual or a HUF. A maximum of Rs 1, 50,000 can be claimed for the FY 2018-19, 2017-18 and FY 2016-17 each. You can invest in tax saving fixed deposits, public provident fund, NPS, Employee provident fund, ULIP, Sukanya Samriddhi Yojana, LIC & ELSS. You can also claim deduction to pay tuition fees (2 children) and repayment of home Loan (taken for purchase & construction only).
|Tuition Fees||It will include fees paid at the time of admission to any university/college/educational institution in India for full time education (including play schools, pre nursery & nursey).It will not include payment towards donation and similar payments.|
|LIC||Policy can be taken in his own life, life of spouse, child (dependent, independent, married, unmarried)|
|Repayment of Home Loan||This deduction is allowed only on actual basis and all deduction will be reversed if property is sold within 5 years from purchase/ construction.|
Deduction for Premium Paid for Annuity Plan of LIC or Other Insurer
This section provides a deduction to an individual for any amount paid or deposited in any annuity plan of LIC or any other insurer. The plan must be for receiving a pension from a fund referred to in Section 10(23AAB). Pension received from the annuity or amount received upon surrender of the annuity, including interest or bonus accrued on the annuity, is taxable in the year of receipt.
Deduction for Contribution to Pension Account
Section 80CCD (1) is allowed to an individual who makes deposits to his/her pension account. Maximum deduction allowed is 10% of salary (in case the taxpayer is an employee) or 20% of gross total income (in case the taxpayer being self-employed) or Rs 1, 50,000, whichever is less.
FY 2016-17 and earlier years – In the case of a self-employed individual, maximum deduction allowed is 10% of gross total income.
b.Deduction for self-contribution to NPS – section 80CCD (1B)
A new section 80CCD (1B) has been introduced for an additional deduction of up to Rs 50,000 for the amount deposited by a taxpayer to their NPS account. Contributions to Atal Pension Yojana are also eligible.
c.Employer’s contribution to NPS – Section 80CCD (2)
Additional deduction is allowed for employer’s contribution to employee’s pension account of up to 10% of the salary of the employee. There is no monetary ceiling on this deduction.
As per Section 80 CCE the combined maximum limit for deduction which can be availed under section 80C,80CCC & 80 CCD(1) is Rs 1,50,000.
Section 80 TTA
Deduction from Gross Total Income for Interest on Savings Bank Account
A deduction of maximum Rs 10,000 can be claimed against interest income from a savings bank account. This deduction is allowed to an individual or an HUF. It can be claimed for interest on deposits in savings account with a bank, co-operative society, or post office. Section 80TTA deduction is not available on interest income from fixed deposits, recurring deposits, or interest income from corporate bonds.
Deduction of Rs 3500 is allowed on interest received from Post office saving bank account -section 10(15)(i) of income tax act.
Deduction for House Rent Paid by self employed /where HRA is not received
This deduction is available for rent paid when HRA is not received. This deduction can be claimed if individual is self-employed. The taxpayer, spouse or minor child, HUF should not own any residential accommodation in India.
Deduction available is the least of the following:
- Rent paid minus 10% of adjusted total income
- Rs 5,000/- per month
- 25% of adjusted total income
The assessee should file form no. 10BA to claim this deduction.
Deduction for Interest on Education Loan for Higher Studies
A deduction is allowed to an individual (not to members of HUF) for interest on loan taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian. The deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.
There is no restriction that higher education should be in India only.
Deductions on Home Loan Interest for First Time Home Owners
FY 2017-18 and FY 2016-17 This deduction is available in FY 2017-18 if the loan has been taken in FY 2016-17. The deduction under this section is available only to an individual who is a first time home-owner. The value of the property purchased must be less than Rs 50 lakh and the home loan must be less than Rs 35 lakh. The loan must be taken from a financial institution and must have been sanctioned between 01 April 2016 to 31 March 2017. Through this section, an additional deduction of Rs 50,000 can be claimed on home loan interest. This is in addition to deduction of Rs 2,00,000 allowed under section 24 of the income tax Act for a self-occupied house property.
Interest on housing loan is allowable as deduction on accrual basis not on paid basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. Interest will not include service fees, brokerage, commission, prepayment charges etc. Maximum deduction of Rs 2,00,000 is allowed in case self-occupied property for construction and purchase only. A deduction is limited to Rs 30,000 if loan is taken for reconstruction, repair & renovation. Further if construction is not completed within 5 years from the end of financial year in which loan is taken then also deduction is limited to Rs 30,000.
Interest paid during the construction/acquisition period shall be allowed in 5 equal instalments from the last day of preceding Financial Year in which the construction is completed.
If house on which home loan is taken is given on rent then there is no limit for interest deduction.
If the home loan is taken on joint names then the deduction is allowed to each co-borrower in proportion to his share in the loan. For taking such deduction it is necessary that such co-borrower must also be co-owner of that property.
The limit on deduction is applicable assessee wise not property wise.
Deduction for the premium paid for Medical Insurance
Deduction under this section is available to an individual (may be resident/non resident/Indian citizen/foreign citizen) or a HUF. A deduction of Rs. 25,000 can be claimed for insurance of self, spouse and dependent children. An additional deduction for insurance of parents is available to the extent of Rs 25,000 if they are less than 60 years of age or Rs 50,000 (has been increased in Budget 2018 from Rs 30,000) if parents are more than 60 years old. In case, a taxpayers age and parents age is 60 years or above, the maximum deduction available under this section is to the extent of Rs. 100,000.
From FY 2015-16 a cumulative additional deduction of Rs. 5,000 is allowed for the preventive health check up to individual (it includes overall limit for self, spouse, children, parents).
Payment should be made by any mode other than cash. However for preventive health check-up payment can be made in cash also.
Parents means father/mother (dependent or independent) but exclude father in law and mother in law.
Deduction for Rehabilitation of Handicapped Dependent Relative
This deduction is available to a resident individual (may be Indian citizen or foreign citizen) or a HUF and is available on:
Expenditure incurred on medical treatment (including nursing), training and rehabilitation of handicapped dependent relative. Relative will include spouse, children, parents, brother & sisters and in case of HUF any member of HUF.
This deduction can also be claimed for payment of an annuity plan or lump sum amount for the benefit of dependent person with disability.
- Payment or deposit to specified scheme for maintenance of dependent handicapped 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.
Deduction for donations towards Social Causes
The various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction as provided in section 80G. From FY 2017-18 any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs 2000 should be made in any mode other than cash to qualify as deduction u/s 80G.
Deduction on contributions given by companies to Political Parties
Deduction is allowed to an Indian company for the amount contributed by it to any political party or an electoral trust. Deduction is allowed for contribution done by any way other than cash.
Deduction on contributions given by any person to Political Parties
Deduction under this section is allowed to a taxpayer except for a company, local authority and an artificial juridical person wholly or partly funded by the government, for any amount contributed to any political party or an electoral trust. The deduction is allowed for contribution done by any way other than cash.
Section 80 TTB
Deduction of Interest on Deposits for Senior Citizens
A new section 80TTB has been inserted vide Budget 2018 wherein, a deduction in respect of interest income from deposits held by senior citizens will be allowed as a deduction from the total income The limit for this deduction is Rs. 50,000. Further, no deduction under section 80TTA shall be allowed. In addition to section 80 TTB, section 194A of the Act will also be amended so as to increase the threshold limit for deduction of tax at source on interest income payable to senior citizens from the existing limit Rs 10,000 to Rs. 50,000.