The Interim Budget 2019 introduced tax relief aimed at lower and middle-income taxpayers. While the most notable proposal under Section 87A offered a full rebate for individuals with taxable income up to INR 5 lakh for FY 2019-20, taxpayers with gross annual incomes between INR 6 and 11 lakh can still benefit from several deductions available under the Income Tax Act to lower their taxable income.
Quick primer on how income tax is computed:
– All sources of income are aggregated to arrive at gross total income.
– Eligible deductions and exempt allowances are subtracted from the gross total income.
– The remaining amount is the taxable income, which determines the tax liability and any rebate under the 2019 proposals.
Below are common deductions available to most individuals, summarized for clarity and practical use.
1. Deductions under Section 80C (Investments)
Section 80C is a widely used route to reduce taxable income by investing in specified instruments. Eligible investments and payments include:
- Public Provident Fund (PPF)
- Tax-saving mutual funds (ELSS)
- Tax-saving fixed deposits
- National Savings Certificate (NSC)
- Repayment of principal on a home loan
- Life insurance premium
- Equity-oriented mutual funds
- Employee Provident Fund (EPF) contributions
The combined limit under Section 80C is subject to the overall cap prescribed by law.
2. Pension Contributions: Sections 80CCC and 80CCD
Contributions to certain pension plans qualify for deductions. Section 80CCC covers premiums paid towards annuity plans offered by insurance companies. Contributions to notified government pension schemes such as the National Pension System (NPS) are eligible under Section 80CCD, each subject to conditions and limits specified in the Act.
3. Interest on Savings Accounts: Section 80TTA
Interest earned on savings bank accounts is taxable under “Income from Other Sources,” but Section 80TTA provides a deduction of up to Rs. 10,000 for individuals and Hindu Undivided Families (HUFs), reducing the taxable interest income.
4. Interest on Home Loans: Section 24
Under Section 24, interest paid on home loans is deductible, subject to limits applicable to self-occupied or let-out property. Note that the deduction pertains to the interest component; the principal repayment is claimable separately under Section 80C.
5. Equity Savings: Section 80CCG
The Rajiv Gandhi Equity Savings Scheme (RGESS) under Section 80CCG allowed a deduction for first-time investors in listed shares or mutual funds, with a permitted deduction of up to 50% of the investment, capped at Rs. 25,000, and a mandatory lock-in period. Eligibility was limited to new investors and subject to conditions in the scheme.
6. Medical Insurance Premiums and Health Check-ups: Section 80D
Premiums paid for medical insurance for self, spouse, children, and parents qualify for deduction under Section 80D. The allowable deduction varies depending on whether the insured individuals are senior citizens. Payments for preventive health check-ups are also eligible within prescribed limits.
7. Disability-Related Deductions: Sections 80DD and 80U
Section 80DD provides deductions for expenses related to the care and treatment of a dependent with a disability. Section 80U allows a deduction for a taxpayer who is himself/herself disabled. The Income Tax Act specifies the qualifying conditions and amounts.
8. Treatment of Specified Diseases: Section 80DDB
Expenses incurred for treatment of specified diseases for the assessee or a dependent are deductible under Section 80DDB. The deduction covers the actual amount paid or a minimum threshold (for example, Rs. 40,000) or higher limits where applicable, subject to the rules and prescribed limits.
9. Interest on Education Loans: Section 80E
Interest paid on education loans for higher education of self, spouse, or dependent children is deductible under Section 80E. The deduction applies only to interest payments, not principal repayment, and carries no upper monetary limit. The benefit is available for education pursued in India or abroad, subject to conditions.
10. Deductions for Donations: Sections 80G, 80GGA, 80GGB, 80GGC
Donations made during the financial year may be eligible for deduction. Section 80G covers a broad range of charitable contributions, while Sections 80GGA, 80GGB, and 80GGC target specific categories such as scientific research, rural development, and contributions to registered political parties. Each section has its own eligibility rules and limits.
11. House Rent Deductions: Section 80GG
Salaried individuals who pay rent and do not claim House Rent Allowance (HRA) under other provisions may claim a deduction under Section 80GG. The deduction is subject to conditions and prescribed maximums based on rent paid and income.
Using these deductions effectively can significantly reduce taxable income and overall tax liability. Taxpayers should refer to current provisions, thresholds, and limits in the Income Tax Act and consult a tax professional when planning investments or claiming deductions to ensure compliance and optimal tax outcomes.