Worried about tax planning? Fret not! Here’s a consolidated list of deductions you can claim under different sections of the Income Tax Act.
Does the complex world of tax planning make you feel like you’re lost at sea? Well, you’re not alone. Keeping finances and tax arrangements in order can often seem like a gargantuan task. With a seemingly never-ending web of tax sections and subsections to navigate through, taxpayers often get confused when it comes to getting tax smart.So, if you’re worried about your taxes, then this is just the article for you. Budget 2018 has touched several aspects of personal finance. After the announcements, people are now assessing its impact on their finances – saving, investments, and taxes.
Additional Reading: Tax planning – Beginning or end of the year?
Here are some important sections of the Income Tax Act you should know about.
This section remained untouched in the latest budget announcement. But, did you know there are at least 14 instruments through which you can claim tax deductions under Section 80C?
Some of the instruments that offer this benefit include the Employee Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), payment towards children’s tuition fees, ELSS, National Pension System (NPS), Life Insurance policy premiums, deposits in the Sukanya Samriddhi Yojana, etc.
Under section 80C, a deduction of Rs. 1,50,000 can be claimed from your total income for FY 2017-18. This deduction is allowed to an individual or a Hindu Undivided Family.
Section 80CCD allows you to claim deductions for contributions made to the National Pension Scheme.
Employee’s contribution – Section 80CCD (1): The maximum deduction allowed under this head is 10% of your salary if you are an employee, 20% of gross total income if you are self-employed.
Self-contribution to NPS – section 80CCD (1B): To boost savings, section 80CCD (1B) allows for an additional deduction of up to Rs. 50,000 for investment in a Tier 1 NPS account. Contributions made to the Atal Pension Yojana are also eligible.
Employer’s contribution to NPS – Section 80CCD (2): Under this, an additional deduction is allowed for employer’s contribution to employee’s pension account of up to 10% of the salary of the employee. As of now, there is no financial limit on this deduction.
The Section 80CCG or Rajiv Gandhi Equity Savings Scheme deduction was launched by the Government to encourage investments in equity shares. Under this section, you can avail a tax deduction of up to 50% of the amount you have invested in equity shares or Rs. 25,000, whichever is lower.
Note: The Rajiv Gandhi Equity Savings Scheme has been discontinued since April, 2017. So no deductions will be available under section 80CCG from Assessment Year (AY) 2018-19. But all those who invested in the scheme in FY 2016-17 can claim deduction until AY 2019-20.
The cost of hospitalisation has risen in the last few years. The tax deduction benefit of Rs. 30,000 u/s 80 (D) for senior citizens was not adequate as the premium for a cover of Rs. 10 lakhs was much higher. Now, the government has proposed to increase the tax deduction benefit to Rs. 50,000 for senior citizens.
An individual health policy for a senior citizen for a cover of Rs. 10 lakhs may cost around Rs. 35,000 to Rs. 40,000 (Age range 61-64 Years) and it may go higher with a higher age group. So, Rs. 50,000 deduction benefit will provide a big benefit to elderly taxpayers.
If you pay a Health Insurance premium on behalf of your parents, then it can now provide an additional deduction benefit of up to Rs. 20,000 (Rs. 50,000 ‘Less’ Rs. 30,000). It means, if you fall in a tax bracket of 30%, then you can save an additional tax of up to Rs. 6,000 (30% of Rs. 20,000).
For uninsured, super senior citizens (over 80 years old) medical expenses, up to Rs. 30,000, are allowed as deduction.
Under this section, a tax deduction of Rs. 40,000 can be claimed on the grounds of medical treatment for specified ailments such as cancer, AIDS, thalassaemia, etc. It is allowed only for individuals below 60 years of age.
The diseases have been listed in Rule 11DD. A certificate in form 10 I is to be furnished by the taxpayer from any registered doctor.
The treatment for a critical illness of a specified disease till now had a tax exemption of up to Rs. 60,000 for senior citizens and Rs. 80,000 for very senior citizens. The budget has proposed to increase this limit to Rs. 1 lakh for all senior citizens.
If you have incurred expenses for treatment of your senior-citizen parents for a specified disease, then you can claim an additional tax deduction benefit of Rs. 40,000 and reduce your tax liability to that extent.
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The interest you earn on your Savings Accounts in a bank, post office or a co-operative society is exempt from tax up to Rs. 10,000.
However, interest from this account should be first included in other income and deduction can be claimed on the total interest earned or Rs. 10,000, whichever is less. This is allowed for both an individual and an HUF.
Keep in mind that this tax exemption is not valid on interest earned via Fixed Deposits, Recurring Deposits or interest income from corporate bonds.
However, Budget 2018 proposed to increase the tax benefit for Fixed Deposit/Recurring Deposit by senior citizens from Rs. 10,000 to Rs. 50,000 in a financial year. The benefit is available for all bank and postal FD/RD.
If you are living in a rented house, the House Rent Allowance (HRA) is a great tax-saving option you can make use of. The tax benefits that you get depend on your basic salary, HRA provided by your employer, your place of residence and the rent you pay.
Have you made contributions to charitable organisations and relief funds? You can claim a tax exemption up to 50% of the amount if you have paid via cheque, draft or cash (not exceeding Rs. 10,000). Contributions made to a few select organisations can get you a 100% tax exemption.
From the Financial Year 2017-18 onwards, any donations made in cash, in excess of Rs. 2,000, will not be allowed as a deduction. Donations above Rs. 2,000 can be made in any mode other than cash.
Section 80GGB provides a hundred percent exemption on any amount contributed by a company to political parties or an electoral trust.
Political party, in this case, refers to any political party registered under section 29A of the Representation of the People Act.
If you have taken a loan for higher education after the completion of your Senior Secondary exam, then you can claim a tax deduction under Section 80E on the interest paid towards the loan.
The loan should have been taken for higher education for yourself, your spouse, your children or any student for whom you are the local guardian.
This deduction can be claimed for up to 8 years or till the interest is paid, whichever is earlier. There is no limit on the amount of interest you can claim for tax exemption.
Additional Reading: In Your 20s? Here’s How You Should Approach Tax Planning
Section 56(2) – Gift Tax
This section applies to taxes on gifts. If you receive gifts (in the form of cash, cheque, etc.) with a value of Rs. 50, 000 (or less) from anyone other than your blood relations, then you don’t have to pay tax for the same.
If the value of the gift is more than Rs. 50,000, then the full amount is taxable. Gifts from blood relations are 100% tax-free.
Additional Reading: The Abolishing Of Gift Tax And What Happened Next!
Standard Deduction Of Rs. 40,000
Budget 2018 has introduced a standard deduction of Rs. 40,000 for employees. This is in lieu of the existing medical and transport allowance. In simple terms, this means that you have to forego the annual transport allowance and medical reimbursement that provide deduction benefits of Rs. 19,200 and Rs. 15,000 respectively. It means that the newly-introduced standard deduction will provide a benefit of only Rs. 5,800 (Rs. 40,000 ‘less’ Rs. 34,200).
Additional Reading: Special Allowances under Section 10 for Salaried Employees
Section 24(b) – Home Loan
If you have taken a Home Loan, then you can claim a tax deduction on the interest component of the loan under Section 24(b). For self-occupied properties, you can benefit from deductions of up to Rs. 2,00,000.
Now that you know about some of the Income Tax sections, think beyond just the popular section 80C to reduce your taxable income to the maximum extent possible. Always remember, tax planning should not be done in isolation. You must align your investment plans with tax-saving instruments to reap the benefits of both ends of the spectrum.
Additional Reading: How do you know when your tax planning strategy has backfired?