In an emerging market economy with high inflation rates such as India, it is only wise for people to save, invest and spend effectively in order to meet a general increase in prices and fall in the purchasing value of money overtime. People’s savings are necessary to sustain an optimum level of demand which boosts manufacturing, services and thereby jobs in the economy.
The government encourages people to save by providing tax deductions to those who do it. The income tax code provides income tax deductions under Section 80C to Section 80U for various investments, expenses and payments made by the individual or a Hindu Undivided Family (HUF) in a given financial year.
Tax Deductions available under section 80 of Income Tax Act, 1961
Section 80C (Individual & HUF)
In all, total deductions under section 80C, 80CCC and 80CCD (1) cannot exceed Rs 1.50 lakh for the current assessment year. Which means total investments, expenses and payments up to a limit of Rs 1.50 lakh are eligible for tax deductions mentioned in the above mentioned sections. These sections cover many savings schemes like National savings certificates (NSCs), Public Provident Fund (PPF) and other pension plans, life insurance premiums, government bond investments. Here’s a section-wise breakup of deductions and exemptions available under the above mentioned codes:
Section 80CCC (Individual)
This section provides tax deductions under any investments made in an annuity plan or Life Insurance Corporation (LIC) or pension received under funds mentioned in Section 10(23AAB).
Section 80CCD (1) (Individual)
The deductions under this section are aimed at encouraging people to save. These deductions are allowed to people who avail the National Pensions savings scheme (NPS). Under this an individual can avail a deduction of up to 10 percent of his/her salary or Rs 1.50 lakh whichever is lower, if the person is employed or the lower of Rs 1.50 lakhs or 10 percent of gross income, if the individual is self employed.
Section 80CCD (2) (Individual)
This is applicable in case of employer’s contribution. Maximum deduction of 10% of salary. This deduction out of the limit 80C 1.5 Lakh.
Section 80CCD (1B) (Individual)
For financial year 2015-16 or assessment year 2016-17, this new section provides for additional tax deduction for amount contributed to NPS of up to Rs 50,000. So for AY2016-17, total deductions under Section 80 are available up to Rs 200,000.
Section 80CCG (Individual but not for NRI)
Lesser of 50% of stock investment value or RS 25000 is allowed to those stock investors whose annual income is below Rs.12 lakh-a-year under Rajiv Gandhi Equity Saving Scheme (RGESS).
Section 80D (Individual & HUF)
Deduction up to Rs.25,000 for self, spouse and dependent children and separate deduction of Rs.30,000 for parents is allowed for premium paid towards medical insurance.
Section 80DD (Individual & HUF)
Deduction of expenses incurred on medical treatment of Dependent Relative is fixed at Rs.75,000 for 40% disability and Rs.1,25,000 for severe i.e. 80% disability. Claimant is required to furnish certificate of disability from prescribed authority.
Section 80DDB (Individual & HUF)
Deduction in respect of specified disease for self or dependent relatives is allowed lower of Rs.60,000 or actual amount paid. This deduction amount increases to Rs.80,000 in case of senior citizen.
Section 80E (Individual)
Deduction is also available on interest outgo on education loan for higher studies. This loan could be taken by the assessee, spouse or children or a student for whom the assessee is a legal guardian.
Section 80G (All Assessee)
Donations given to various specified institutions and organizations are allowed to be deducted from your income. The deductions are segregated under two categories i.e. 100% or 50% but cash donations exceeding Rs.10,000 is not allowed to claim.
Section 80GG (Individual)
A deduction on house rent paid is available to those who are not paid house rent allowance (HRA) by the employer. An individual, spouse or minor children shouldn’t own a home at the place of employment of the assessee to claim this deduction. Neither the assessee should have a self-occupied residence at any other place. The deduction available is limited to: rent minus 10% of total income or 25% of total income or Rs 2000 (whichever is lower).
Section GGB & GGC (All Assessee)
Even donations given to political party are allowed for deduction without any restriction, but if it’s in cash and exceeding Rs.10,000, the deduction becomes ineligible.
Section 80RRB (Individual)
Any Individual assessee who is patentee can claim deduction up to Rs.3 lac. Assessee has to furnish a patent certificate duly signed by competent authority.
Section 80TTA (Individual & HUF)
Any interest earned (up to Rs 10,000) on your deposits in a savings bank account, co-operative society or post office is tax deductible. This excludes fixed deposit interest income.
Section 80U (Individual & HUF)
Physically Disabled persons can claim deductions under 80U of Rs.1,00,000. Assessee is required to obtain certificate from Government Doctor.
Apart from the above deductions another important deduction for the assesee having taxable income below Rs.5 lakh is available u/s 87A.