Taxpayers should use all available deductions and exemptions to reduce their tax liability. Examining the Income Tax Act is essential for comprehending the deductions and exemptions accessible to you while filing your Income Tax Return (ITR) in India. The deductions and exemptions vary based on your category whether you are a salaried individual, pensioner, or self-employed individual.
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Deductions under Section 80C
Several deductions are encompassed within Section 80C of the Income Tax Act in India. This provision enables you to claim deductions for various investments and expenses, thereby, reducing your taxable income and potentially decreasing your tax liability. Here’s an overview of the deductions available to you:
- Public Provident Fund: The Public Provident Fund (PPF) contributions are deductible under Section 80C. PPF is a well-liked long-term investment option because it provides tax benefits and competitive interest rates.
- Equity-Linked Savings Schemes: Section 80C allows for the tax deduction of investments made in equity-linked savings schemes (ELSS), a type of equity mutual fund. Compared to traditional options like PPF, ELSS has the potential to yield higher returns, but it is more susceptible to market risk.
- National Pension System: Section 80C allows contributions to Tier-I National Pension Scheme (NPS) accounts to be deductible. With tax breaks available on contributions, investment growth, and the maturity amount, NPS is a long-term retirement savings plan.
- Life insurance premiums: Subject to certain limitations, Section 80C allows you to deduct the premiums you pay for life insurance policies (for you, your spouse, or your dependent children).
- Tuition fees: For up to two children (including legally adopted children) enrolled full-time in any school, college, university, or other educational establishment in India, Section 80C permits the deduction of tuition costs. There is a cap on the amount that can be withheld for further education outside of India.
Deductions under Section 80D
You can deduct the premiums for your family, yourself, and, in certain cases, your dependent parents from your income tax under Section 80D of the Income Tax Act of India. The following are eligible to claim a deduction under this provision.
- Individuals: Paying health insurance premiums for oneself, one’s spouse, and one’s dependent children can be written off by an individual.
- Seniors (those over 60): There is a higher deduction cap for seniors. In addition, they are eligible to deduct the costs of their parents’ health insurance premiums (up to age 80).
Premiums paid for health insurance policies provided by recognized insurance firms in India are tax deductible. This usually comprises individual health insurance policies, family floater plans, and critical illness plans. If your health insurance policy covers hospitalization for Ayurvedic treatment, the premiums are also deductible under Section 80D.
Depending on your age and the person you are insuring, the maximum deduction limit under Section 80D for medical insurance premiums varies: - Individual (below 60 years old): ₹25,000 (with the deduction for annual physicals).
- Individual (above 60 years of age): ₹50,000 (with the deduction for annual health examinations).
- Parents of senior citizens (up to 80 years old): The senior citizen is eligible to receive an additional ₹25,000 (or ₹50,000 if they are over 80 years old) if they pay for their parents’ health insurance
The deduction limit for preventive health check-ups is ₹5,000 per financial year, included within the overall limits mentioned above. While you can claim deductions for multiple health insurance policies, the total deduction cannot exceed the specified limit.
The documents needed to claim a deduction under Section 80D include: - Receipts or certificates for the medical insurance premiums paid.
- Proof of relationship with the parents, if claiming a deduction for their medical insurance (for senior citizens).
Consider opting for a family floater health insurance plan to cover all family members under a single premium, potentially maximising your deduction. If you are a senior citizen and have dependent parents, ensure you pay their health insurance premiums to claim additional deductions. Remember, the deduction applies to premiums paid, not the total sum insured.
Also Read :- You can follow these steps: to raise Query on Income Tax Portal
Deductions under Section 24
You can lower your taxable income and, consequently, minimize your tax payment by claiming a deduction for home loan interest under Section 24 of the Income Tax Act of India.
Under this section, the following types of home loans are deductible:
- Loans taken out for buying, developing, fixing, or reconstructing a home.
- Loans taken out from authorized financial institutions, banks, or mortgage lenders.
The type of property and the loan’s original date determine the maximum deduction limit for interest paid on a home loan under Section 24.
- Self-occupied property: Every fiscal year, self-occupied property costs ₹2 lakh (as of AY 2024–25).
- Let-out property: There is no cap on the amount of interest that can be deducted from the mortgage.
The interest paid on a home loan during pre-construction may be written off, but only if it is done so in five equal instalments starting in the year the property is prepared for occupancy. Each co-owner may be eligible for a proportionate deduction based on their share of the loan repayment if the home loan is held jointly. Only the interest portion of the EMI paid on the home loan is eligible for deduction. Under certain circumstances, the principal repayment amount may be claimed under Section 80C but is not deductible under Section 24 of the Income Tax Act.
Available exemptions under various sections
The House Rent Allowance (HRA) and Leave Travel Allowance (LTA) exemptions can help reduce your tax burden in India:
- House Rent Allowance: Provided by some employers to help offset rent costs, a portion of this allowance is exempt from tax under Section 10(13A) of the Income Tax Act. The exemption is the minimum of the following three amounts:
1 – Actual HRA received from your employer.
2 – 50% of your basic salary (if you live in a metro city) or 40% (for non-metro cities).
3 – Actual rent paid minus 10% of your basic salary.
To qualify for HRA exemptions, you must meet certain conditions:
1 – You must be paying rent for a separate accommodation.
2 – You need to have rent receipts in your name.
3 – In some cases, a rental agreement may be required. - Leave Travel Allowance: Some businesses provide LTA to help cover travel expenses incurred while on leave for you and your family. Section 10(5) of the Income Tax Act provides a limited exemption for LTAs. The exemption limit is the least of the following:
1 – Actual travel expenses incurred (with bills for evidence).
2 – According to income tax guidelines, the journey’s airfare should be in economy class.
3 – The amount approved by your employer for LTA.
The prerequisites for availing of this exemption are:
1 – The travel must be done within India.
2 – The exemption applies only to leave-related travel, not business travel.
3 – You can claim the exemption for two journeys within four years. The current block year spans 2022 to 2025.
Credit – Live Mint
