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Income Tax Exemptions and deductions,
give you plenty of opportunities to save tax. By using wisely these
exemptions and deductions, you can reduce your tax out-go. In this post, I am
listing the available exemptions, and deduction under income tax act.
Allowances Exempted Under Section 10 of Income Tax Act
1. House Rent Allowance (HRA)
You get a job and shift to another city. Because of your job, you live
in a different place. You are forced to live in a rented accommodation. The
rented flat is not by choice but because of the duty. Hence, the expense on
rent is because of your job. You can’t avoid this, even if you wish. Therefore,
government exempt the rent
from income tax. However, your employer must pay the house rent allowance.
Exemption of HRA is a minimum of
- Actual HRA received.
- Rent paid less 10% of salary.
- 40% of Salary (50% in case of
Mumbai, Chennai, Kolkata, Delhi).
In this case, salary is basic plus dearness allowance (basic+DA).
Leave Travel Allowance
LTC or LTA is exempted if the same is actually spent
You daily go to your office or workplace from you house. You also spend on
the local transport. This expenditure is also forced upon you. Therefore, the
government has exempted transport allowance from the income tax, provided your
employer gives you the transport allowance.
You don’t need to give any receipt of this local travel. However, the tax exemption is Rs
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Children Education Allowance
Children Education allowance in also exempted from income tax. Your employer
must give this allowance for availing the tax exemptions. It is Rs. 100
per month per child up to a maximum of 2 children.
This is another tax exemption related to your child’s education. It
is Rs. 300 per month per child up to a maximum of two children.
Other Allowance Eligible For Income Tax exemptions
Uniform Allowance, Special Compensatory Allowance, High Altitude Allowance,
allowances applicable to North East, Compensatory Field Area Allowance,
Counter Insurgency Allowance, High Active Field Area Allowance, island duty
allowance, tribal allowance etc. These allowances are tax-free, but you need to
produce the proof of the actual expense in some cases.
Income Tax Exemption on Interest Paid on
This Exemption is also related to your accommodation because of the
job. After shifting to a different place, you may opt for your own house
instead of rented accommodation. If you take home loan for the house, the
interest payment is tax exempted. You can get maximum exemption
of Rs 2 lakh on housing loan interest. There are
some conditions for this exemption.
The house should be self-occupied. You may get this exemption if your home
is under construction. however the construction should complete
within 3 years.
Tax Deduction Under Section 80C
The Government wants to encourage some certain types of investments and
expenses. To achieve this goal it gives the benefit of tax deductions. There
are many investments and expenses under section 80C, 80CCC and 80CCD. However,
the total deductions under this section are limited to Rs 1.5 lakh.
- Employee Provident Fund
- Pension/ Annuity Schemes
- Life insurance premium
- Tax Saving mutual fund (ELSS)
- Home loan principal payment
- Sukanya Samriddhi Account
- Tuition fees of children
- PPF Account Contribution
- National Saving
- Tax-saving fixed Deposit
- Post office time deposits
Section 80CCC: Deduction For Annuity Plan
You can also get a deduction for the annuity plan of insurance companies.
There are some limitations on this deduction.
- You can’t contribute more
than 10% of your salary or gross income.
- You can’t enjoy the deduction
of more than Rs 1 lakh in a year.
Section 80CCD(1) : Contribution For Pension Plan
Similar to annuities, contribution in pension plans is also eligible for tax
deduction. For example contribution to National Pension Scheme (NPS) will get
deduction benefit under this rule.
It is also
limited to 10% of salary or 10% gross income (if not salaried).
Section 80CCD(2): Contribution To Pension Plan By employer
This section gives you extra tax saving opportunity. If your employer
contributes into your pension plan, it would be also tax-free. This
contribution does not come under the overall limit of 1.5 lakh.
You can ask your employer to contribute 10% of your salary into
your pension plan. It will not affect your employer financially, but you
would be able to save some more tax.
Deductions Under Chapter VIA of Income Tax Act
Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)
This scheme also gives you the extra tax saving. To avail this benefit, you
must be the first-time investor in the share market. Your annual income should
not be more than Rs 10 lakh. You can invest up to Rs 50,000 under this scheme.
However, the tax deduction would be available for the 50% of your investment.
So, if you invest Rs 50,000, you will get the tax deduction of only Rs 25,000.
There is some mutual fund scheme which is designed for RGESS. However, due to
the complex rules, it could not become popular.
Section 80D: Medical Insurance Deduction
This scheme also gives you a chance to save tax over and above the 1.5
lakh. One must use this tax saving opportunity. In the budget 2015 the
government does not change income tax slab, but it has increased the limit for
section 80D. Section 80D can give you a tax deduction of up to Rs 65,000.
Medical insurance of self, family and parents are eligible for tax deduction
under section 80D.
Section 80DD: Deduction For Maintenance of Disable Dependent
Under this section, one can get extra tax deduction of Rs 50,000. To avail
this deduction, you must fulfill some conditions.
1. A person with a disability must be dependent upon you. The
disability may be physical or mental.
2. You must produce a certificate from the doctor.
3. You must incur the expense of treatment, rehabilitation, nursing and
If you deposit any amount in any scheme for the disabled, it would be also eligible for tax deduction.
If dependent person is with severe disability, you can claim deduction up to
Section 80DDB: Serious Illness Deduction
This deduction is for the treatment of serious illness. An assessee can get
an income tax deduction of Rs 40,000 under this section.
- The deduction is for the
expense of illness of self or dependent.
- The illness should be within
the prescribed list.
- There should be real expense.
Any reimbursements of insurance claims should be subtracted.
- You must give a certificate
from the government doctor.
- For senior citizens this
deduction limit is Rs 80,000.
Section 80E: Deduction on Loan for Higher Studies
Like the home loan interest, one can also claim income tax deduction for
education loan interest.
- You must take education loan
from a financial institution.
- You can avail this tax
deduction maximum of 7 years.
- You can take the benefit of
this deduction only for the higher education.
- You can take this benefit
only for the education of self, spouse or children. If you are the legal
guardian of a student, you can also take this benefit.
Section 80G: Deduction for Donations
The donations specified in Section 80G are eligible for deduction. The
deduction may of 100% of donation or 50%, It depends upon the type of receiver.
Section 80GG: Deduction on House Rent Paid
This deduction is for those, who don’t get the house rent allowance from
their employer. Such person can avail this deduction according the specified
Deduction is the least of
- Rent paid less 10% of total
- Rs. 2000/ month, i.e. Maximum
Deduction available is 24,000.
- 25% of total income
There are some conditions for this benefit.
- Assessee or his spouse or
minor child should not own residential accommodation at the place of employment.
- He should not get a
house rent allowance (HRA).
- He should not have self
occupied residential premises in any other place.
Section 80TTA: Saving Account Interest Deduction
Interest earned on a saving account is not added in taxable income, if it is
less than Rs 10,000 in a financial year.
Section 80U: Deduction For Disabled
Under section 80U a person with disability gets extra deduction from his/her
taxable income. Such person can deduct Rs75,000 from the taxable income. In
case the disability is severe, the deduction is up to Rs 1,25,000. To avail
this deduction one should obtain a certificate from the government doctor.