Mid-January is a stressful time for most salaried individuals. Most of them are calling their CAs, talking to their friends or opening fixed deposits to make investments to avoid/reduce their taxes. It is the time when most offices require the employees to submit their investment proofs for availing the tax benefit.
Most of us know about the deduction of INR. 150,000 available to individuals. This deduction means that an amount of INR 150,000 is reduced from your total taxable income and then, the balance is taxable under the Act. Generally, people know that this INR 150,000 deduction is available when you invest in the Provident Fund (PF), an insurance policy or a new fixed deposit (FD) of 5 years every year.
These are not the only options available for tax savings. In our Article, taxation of salary, we discussed ways and reasons to make the most of your salary. Here, we are going to discuss, means made available to you under the Income-tax Act, 1961 to reduce your tax payable. To make use of any of these options, you will have to actually spend the money, invest it i.e. there will be an outflow of funds. You also need to have a backup and the relevant documents to claim the tax deductions.
The deductions for the following expenses/investments are allowed.
- Popular INR 150,000 deduction: Claiming a deduction of INR 150,000 under section 80C of the Act can reduce your tax outgo by around Rs. 45,000 (for someone in a 30% tax bracket, calculation without considering cess). Also, the government has included many options under this to inculcate and increase the practice of investing and saving.
| Product | Tax Benefit |
| 1. Insurance Policy | Payments made towards the premium of self, spouse, and children. The debt should be made from the individuals' bank account who is claiming the tax deduction. |
| 2. Provident Fund (PF) | Payment made towards provident fund or superannuation fund |
| 3. Tuition Fees | Tuition fees paid to educate 2 children |
| 4. Construction or purchase of residential house | The principal amount of the loan towards purchasing or constructing a new house. |
| 5. Fixed Deposit | Investing in an FD for a period of 5 years or more and stay invested for 5 years. |
| 6. Mutual Funds | Investing in a specific tax-saving MF categorized as ELSS for a lock-in period of 3 years |
| 7. Others | National Savings Scheme, sukanya Samriddhi Scheme, Employee Provident Fund, Voluntary Provident Fund, Senior Citizens saving scheme, Unit-linked insurance plan, Infrastructure Bonds, NABARD Rural Bonds |
- Invest for retirement and taxes – Under section 80CCD (1B), an additional deduction of up to INR 50,000 for the amount deposited by a taxpayer to the National Pension Scheme (NPS) notified by the central government can be claimed. This is subject to the contribution being less than 10% of the basic salary of the employee. Contributions to Atal Pension Yojana are also eligible.
- Employer’s contribution to NPS – Section 80CCD (2), an additional deduction is allowed for the employer’s contribution to an employee’s pension account of up to 10% of the salary of the employee. There is no monetary ceiling on this deduction.
- Interest earned on the savings bank account: A deduction of maximum INR 10,000 can be claimed against interest income from a savings bank account as per section 80 TTA of the Act. Interest from a savings bank account should be first included in other income and deduction can be claimed of the total interest earned or INR 10,000, whichever is less.
- Health Insurance and preventive health check-up: A deduction of the amount paid towards health insurance premium of your family (including your spouse and children) and parents, which are different from the benefits, based on the costs related to health check-ups. The deduction limits are as follows:
| Persons covered | Exemption Limit | Health check-up exemption | Total |
| Self and family | INR 25,000 | INR 5,000 | INR 25,000 |
| self and family + parents | (INR 25,000 + INR 25,000) = INR 50,000 | INR 5,000 | INR 55,000 |
| self and family + senior citizen parents | (INR 25,000 + INR 30,000) = INR 55,000 | INR 5,000 | INR 60,000 |
| self (senior citizen) and family + senior citizen parents | (INR 30,000 + INR 30,000) = INR 60,000 | INR 5,000 | INR 65,000 |
- Save tax on loan taken for higher education- A deduction under section 80 EE is allowed to an individual for interest on a loan is 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.
- Save while you pay for a disabled dependent: Under section 80 DD medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent '
Disability is 40% or more but less than 80% - Rs.75,000
Disability is 80% or more – Rs. 125,000
- Medical expenses of a disabled Individual - Self-suffering from disability:
An individual suffering from a physical disability (including blindness) or mental retardation. – Rs. 75,000
An individual suffering from severe disability – Rs. 125,000
- Save tax while you donate: The various donations specified under section 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.
- 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.
These deductions are the best ways to reduce your taxes and also save and invest your money. We have included all the sections for deductions above. However, if you have any query, please leave it in the comments below and we shall revert to you at the earliest.