There are a number of ways to save taxes as per income tax act 1961 but only selective people know about this. In this article, we discuss how to invest and how to save taxes.
Around 30% to 40% are self-employed and they can save the taxes by taking deductions against the Income under section 30 to 36 of Income Tax Act 1961, 60% to 70% persons are working as an employee and they pay high taxes as compared to the business entity and this article for them only.
You can invest Rs. 1.5 lakhs under section 80C in any of the following tax saving schemes.
Highlights Now you can claim extra Rs. 50,000 under section 80C for Assessment Year 2019-20.
|Section||Permissible limit||Type of investment, expense or income||Eligible claimants|
|80C||Maximum Rs. 1,50,000 (aggregate of 80C, 80CCC and 80CCD)||LIC premium, tuition fees, Bank FD’s, EPF, PPF, NSC,||Individuals, HUFs|
|80CCC||Maximum Rs. 1,50,000 (aggregate of 80C, 80CCC and 80CCD)||Pension funds||Individuals|
|80CCD||Maximum Rs. 1,50,000 (aggregate of 80C, 80CCC and 80CCD)||National pension fund||Individuals|
|80TTA||Up to Rs. 10,000 per year||Interest on bank savings account||Individuals and HUFs|
|80TTB||Up to Rs. 50,000 per year||Interest on Bank Saving account and Interest on Bank Fixed Deposits||Individuals (Senior Citizen)|
|80CCG||50% of the amount invested a subject maximum of Rs. 25,000||Equity saving schemes||Individuals|
|80CCF||Up to Rs. 20, 000||Long term infrastructure bonds||Individuals and HUFs|
|80D||For individual taxpayers- Premium up to Rs. 25,000 in case of individuals and up to Rs. 30,000 for senior citizens|
Note: Rs 5000 for Health check-up are included in the above figure
For HUFs- Premium up to Rs. 25,000 and up to Rs. 30,000 in case the member insured is a senior citizen or super senior, citizen
|Medical insurance premium and Health check up||Individuals and HUFs|
|80E||No limit||Interest on repayment of Education loan||Individuals|
|80EE||Maximum Rs. 50,000||Interest on loan payable for acquiring a residential house property||Individuals|
|80G||Differs with the amount of donation||General donations of any recognized society||Individuals, HUF’s, Companies, Firms|
|80GGA||Depends on the quantum of donation||Donations to Scientific Research or Rural development||Those who do not have income from business or profession|
|80GGB||Depends on the quantum of donation||Donations to political parties||Indian companies only|
|80GG||Rs. 5000 per month or 25% of total income whichever is less||Rent paid if HRA is not received||Individuals not receiving HRA|
This section includes the following investments and expenses:
Investment in PPF: You can claim a deduction for the investment made in PPF account. You can invest a maximum of Rs. 1.5 lakh in a year. Receipts on maturity and withdrawal are tax-free.
Investment in National savings certificate: National Savings Certificate is eligible for deductions in the year they are purchased. Interest accrued on such certificates is eligible for tax deductions each year under section 80C, but becomes taxable at the time of maturity.
Investment in fixed deposit: Interest earned on fixed deposits with tenure of not less than five years are eligible for tax deduction under section 80C. For senior citizens, tax exempted interest income on deposits with banks has been increased from Rs. 10,000 to Rs. 50,000. Further, TDS will not be required to be deducted under section 194A and it has been extended to all FD and RD schemes
The premium on a life insurance policy: You can claim a deduction under section 80C for the premium paid for a life insurance policy as per the income tax act.
Contribution to employee provident fund: You can claim a tax deduction for the contribution made in employee provident fund under section 80C. Government to contribute 12% of EPF contribution for new employees (with less than 3 years of employment) in all sectors. New women employees (with less than 3 years of employment) to contribute only 8% of salary as EPF contribution as opposed to 12% earlier.
Equity-oriented mutual funds: You can claim a tax deduction for the investment made in any unit of mutual funds whether it is listed on the stock exchange or not.
Repayment of principal on housing loan: you can claim a tax deduction on the principal amount paid for the Home loan under section 80C.
Tuition Fees: You can claim a tax deduction for the tuition fees paid under section 80C. However, the deduction will only be applicable in case the fees paid by cheque.
Tax deductions under Section 80CCC and 80CCD for contribution to pension funds
Section 80CCD has been further divided into two subsections to provide clarity regarding the available deductions for income tax assesses. While one subsection deals with the rules about tax deductions available to salaried and self-employed professionals, the other pertains to contributions made by the employer towards NPS.
Following is detailed information regarding the two sections for Section 80 CCD.
(i) Section 80CCD (1)
This subsection defines the rules related to income tax deduction available to individuals for contributions made to the NPS. It is irrespective of the fact whether the contribution has been made by a government employee, private employee or a self-employed individual. The provisions of this section apply to all Indian citizens who are contributing to the NPS and are between the age of 18 to 60 years. This also applies to NRIs.
Following are the key provisions of Section 80 CCD (1):
- The maximum deduction permissible under this section is 10% of the salary (basic + DA) or 10% of the gross income of the individual.
- From FY 2017-18, this limit has been increased for the self-employed individualsto 20% of the Gross total income with the maximum limit being capped at Rs. 1,50,000/- for a given financial year.
A new amendment to the Section 80 CCD has been introduced in the Union budget of the year 2015 as sub-section 1B. Under these new provisions, individuals can claim an additional deduction of Rs. 50,000/-. This is available to both salaried as well as self-employed individuals. This has thereby raised the maximum deduction available under Section 80CCD to Rs. 2,00,000/-. Tax benefits under Section 80CCD (1B) can be claimed over and above the deductions available under Section 80CCD (1).
(ii) Section 80CCD (2)
The provisions under Section 80 CCD (2) come into effect when an employer is contributing to the NPS of an employee. The contributions towards NPS can be made by an employer in addition to those made towards PPF and EPF. The contribution made by the employer can be equal to or higher than the contribution of the employee. This section applies to only salaried individuals and not to self-employed individuals. The deductions under this Section can be availed over and above those of Section 80 CCD (1).
Section 80CCD (2) allows salaried individuals to claim deductions up to 10% of their salary which includes the basic pay and dearness allowance or is equal to the contributions made by the employer towards the NPS.
You can claim a tax deduction under Section 80CCC and 80CCD for the contribution made to Pension Funds. If you have contributed any amount in any insurance scheme to receive a pension, then you can claim a tax deduction under 80CCC. However, if you have contributed in any pension scheme initiated by the central government, up to 10% of your salary such as National Pension Scheme then you can claim a tax deduction under section 80CCD.
Note: As per the Income Tax Act, the maximum limit of Rs. 1.5 lakh is an aggregate of deduction that may be claimed under section 80C, 80CCC, and 80CCD. However, an exclusive tax benefit is available for NPS subscribers under section 80CCD. As per income tax act, the Tier 1 account holder gets an additional deduction for investment up to Rs. 50, 000 in NPS. This deduction is over and above the deduction of Rs. 1.5 lakh available under section 80C of IT Act, 1961.
Section 80TTA: Deductions for interest on savings account
You can claim a tax deduction under section 80TTA for interest earned on a bank savings account. The deduction is subject to the maximum amount of Rs. 10,000. However, the income earned will be first added under the head of Income from other sources first and after that, the deduction can be claimed.
Section 80CCF: Deduction for the investment made in long term infrastructure bonds
You can claim a tax deduction under section 80CCF for an investment made in long term infrastructure bonds notified by the government. You can claim a maximum deduction up to Rs. 20,000.
Section 80CCG: Deduction for the investment made under an equity saving scheme
The deduction is also known as Rajiv Gandhi Equity Saving Scheme. You can claim a tax deduction for an investment made in listed shares or mutual funds. However, the maximum deduction allowed is Rs. 25,000.
Tax deduction under section 80D for payment of medical insurance premium and health check-up
You can claim a tax deduction under this section for the payment of medical insurance premium for self, spouse or any child. In addition, any amount paid for a health check-up can also be claimed for tax deduction which shall not exceed to Rs. 5,000.
Section 80E: an Income tax deduction for interest on Education Loan
You can claim a tax deduction under section 80E for interest paid on repayment of Education loan. The deduction can only be claimed on the interest paid on repayment of the loan and not on the principal amount.
Section 80EE: Deduction for interest payable on the loan is taken for acquisition of a residential house property
You can claim a tax deduction under section 80EE for interest payable for the loan taken for acquisition of a residential house property. The maximum deduction claimed is Rs. 50,000.
Tax deduction under section 80G, 80GGA, 80GGB and 80GGC for donations
You can claim a tax deduction under section 80G for a general donation made during a financial year. Deductions under section 80GGA can be claimed if the donation is made for Scientific Research or Rural development. Deductions under section 80GGB and 80GGC can be claimed if donation is made to any political party.
Section 80GG: Tax deduction for rent paid for FY18
You can claim a tax deduction under section 80GG for the rent paid for the house. However, you can claim deduction under this section only in case when you have not received house rent allowance. If you are receiving HRA then you are not entitled to deduction under this section. You can claim deduction under section 80GG when the rent paid by you is more than 10% of your total income subject to a maximum of Rs. 5000 per month or 25% of total income whichever is less.
Income tax exemption
As per chapter III of the Income Tax Act, 1961, there exists a provision of income tax exemption. There are few types of specified incomes on which you can get an exemption from paying tax. this means at the time of calculating income tax certain incomes will not be added. The most common incomes that are exempted from income tax are listed below:
House rent allowance – HRA tax exemption
Salaried individuals receive house rent allowance (HRA) from their employer. An exemption against HRA under Chapter 10 of the Income Tax Act is possible if the employee is living in rented accommodation and pays rent to the owner. The HRA exemption can also be claimed by submitting proof of rent paid to the employer or at the time of filing ITR. The taxpayer just needs to find out how much exemption he can avail and then recalculate the total taxable income after adjusting the exemption.
HRA exemption is subject to the employee actually staying on rent. The amount of HTA exemption is the lower of:
- HRA received from an employer
- Actual rent paid less 10% of basic monthly salary
- 40% of basic salary for those staying in any place except the metros cities of Delhi, Mumbai, Kolkata, and Chennai. In the case of people staying in these four cities, the exemption can be up to 50% of basic salary
Leave Travel Assistance – LTA tax exemption
Leave travel assistance (LTA) received from the employer towards the cost of domestic travel to hometown or for vacation once in two years by rail or by air for self and family members can be claimed as exempt income.
This deduction can only be claimed by a person from the employer directly. LTA is allowed to claim twice in the block of four years. The current block is 2014-2018. However, employees are now allowed to carry one unclaimed LTA to next year as well
Income Tax Deductions and Exemptions: Budget 2018-19 Highlights
All Salaried Individuals
- Standard Deduction of Rs. 40,000 has been allowed for salaried taxpayers. Medical Allowance and Transport Allowances has been discontinued.
- Government to contribute 12% EPF contribution for new employees (with less than 3 years of employment) in all sectors.
- New women employees (with less than 3 years of employment) to contribute only 8% of salary for EPF contribution as opposed to 12% earlier.
- Tax deduction under Section 80 D for Health Insurance expenditure has been increased to Rs. 50,000 from Rs. 30,000 earlier.
- The expense of up to Rs. 1 lakh incurred on critical illness has been exempted from tax under Section 80 DDB. Earlier the exemption was Rs. 60,000 for senior citizens and Rs. 80,000 for very senior citizens.
- Tax exempted interest income on deposits with banks has been increased from Rs. 10,000 to Rs. 50,000. Further, TDS will not be required to be deducted under section 194A and it has been extended to all FD and RD schemes.