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Income Tax deductions - Everything you need to know

  • Highlights

  • Income tax slab is based on your income and profile

  • Find out total taxable income to see what you can save

  • Ensure you save under each income tax section

  • Enjoy income tax exemptions every financial year

Every individual or entity in India is taxed on income. This amount is determined by the tax slab and profile your income and you fall under. NRIs, for example, pay tax on income accrued or earned, while as a salaried professional you pay tax on the salary you earn. Whatever you pay as income tax deductions are collected by the government and is used for various purposes including civic development. But the government allows you a chance to save on tax too. You get deductions on tax under various sections of the IT Act, and can claim them from your taxable income at the end of the year while filing your taxes.

But before understanding what income tax deductions you can claim, take a look at the income tax slabs.

Income tax slabs in India for residents under 60 years of age are as follows:

- Income up to Rs.2,50,000 is not taxed.
- Tax rate for income between Rs.2,50,001–Rs.5,00,000 is 5% of total income (after deduction of Rs.2,50,000) + 4% Cess.
- Tax rate for income between Rs.5,00,001–Rs.10,00,000 is 20% or total income (after deduction of Rs.5,00,000) + Rs.12,500 + 4% Cess.
- Tax rate for income above Rs.10,00,000 is Rs.1,12,500 + 30% of total income (after deduction of Rs.10,00,000) + 4% Cess.

The tax rate applicable for individuals between the years of 60-80 is as follows:

- Income up to Rs.3,00,000 is not taxed
- Tax rate for income between Rs.3,00,001–Rs.5,00,000 is 5% of total income (after deduction of Rs.3,00,000) + 4% cess
- Tax rate of income between Rs.5,00,001–Rs.10,00,000 is Rs.10,000 + 20% of total income (after deduction of Rs.5,00,000) + cess.
- Tax rate for income above Rs.10,00,000 is Rs.1,10,000 + 30% of total income (after deduction of Rs.10,00,000 + 4% cess.

The tax rate applicable for individuals above 80 years of age is as follows:

- Income up to Rs.5,00,000 is not taxed
- The tax rate for income between Rs.5,00,001-Rs.10,00,000 is 20% of total income (after deducting Rs.5,00,000) + 4% cess.
-The tax rate for income above Rs.10,00,000 is Rs.1,00,000 + 30% of total income (after deduction of Rs.10,00,000) +4% cess

Once you determine your income tax slab based on your annual income, find out your total taxable income. If you earn Rs.5,00,000 per annum, for example, then your taxable income is Rs.2,50,000. This is owing to the fact that your income features in the Rs.2,50,001–Rs.5,00,000 income tax slab. You will be taxed 5% on Rs.2,50,000, i.e. Rs.12,500 + 4% cess (tax on tax). Now, by claiming deductions for your annual savings you can reduce your taxable income and then pay income tax on the final figure.

What are deductions under income tax?

You can claim deductions on a long list of investments and expenses. Your health insurance, life insurance, long-term savings in FD and PPF, savings in mutual funds, etc., are all allowed for deductions. The tuitions fees you pay for your children (up to 2), the home rent you earn, and the home loan and education loan you are repaying are all eligible for deductions.

What are the most important Income Tax deductions you can claim?

You can claim income tax deductions as an individual or as a representative of the Hindu Undivided Family (HUF). Apart from deductions in income tax under other broader sections and those mention above, you can also get some added tax benefit in case you are a first-time homeowner or you are applying jointly for a loan with your spouse. Take a look at the broader sections and the limits under which you can claim income tax deductions.

Additional Read: First Time Home Buyer Tax Benefits

As per Section 80C

This is one of the most vital sections under which you can save on income tax deductions. You can claim a maximum deduction of Rs.1.5 lakh under this section. The varied instruments covered under this section are PPF, EPF, insurances, NPS, tuition fees for your child, post office deposit, etc. You can also claim deductions against the principal you repay towards your home loan under 80C.

Additional Read: All You Wanted To Know About Tax Deductions Under Section 80c

As per Section 80CCC and 80CCD

These are sub sections of 80C deductions under and include the contribution made towards an annuity plan of a life insurance provider for the purpose of obtaining pension under 80CCC. Additionally, claim your contributions made to the Atal Pension Yojana and get 10% to 20% deduction from your income based on your criteria for exemption. The deduction cap combining these three sections is Rs.1.5 lakh.

As per Section 80D

You can claim income tax deductions for the health insurance premium you pay for yourself, your spouse, dependent children, and senior citizen parents under this section. The claim limit for your family, excluding parents, is Rs.25,000. You can claim an additional Rs.30,000 for parents.

As per Section 80DD

You are allowed to claim Rs.75,000 as income tax deduction towards your spending on medical treatments for 40% disabled dependents in the family. In case of severe disability, the limit is extended to Rs.1.25 lakh.

As per Section 80DDB

You can claim income tax deductions for what you spend to treat critical illnesses for yourself and your dependants under this section. The maximum cap levied is Rs.40,000 if you are below 60, Rs.60,000 for senior citizens and Rs.80,000 for very senior citizens.

As per Section 24

Under section 24, you can claim the interest paid towards the home loan for your house purchase. The maximum cap for this claim is Rs.2 lakh.

Additional Read: How To Save Tax When You’re Buying A Home

As per Section 80E

You can claim the interest on the educational loan for deduction under this section. The loan must have been taken to fund education for yourself, your spouse, your children, and any child for whom you are a legal guardian. There is no limit on the amount of interest you can claim.

As per Section 80EE

You can claim an additional Rs.50,000 on interest paid on your home loan as a first-time home buyer under this section. The income tax deduction is only allowed if the amount of loan is less than Rs.35 lakh and the value of the house is within Rs.50 lakh.

As per Section 80G

This section allows you to claim income tax deductions for all the donations you make. You can claim donations made via cash or cheque. However, for cash the maximum cap has been revised to Rs.2,000. You can check the Income Tax website to see the list of donations allowed under this section.

As per Section 80TTA

You can claim a maximum of Rs.10,000 towards the interest earned on your savings deposit under this section.

Additional Read: How much tax can you save under Section 80C, 80D, and 80G?

Equipped with this knowledge, determine the categories and sections under which you can claim an income tax deduction in advance. This will help you fulfil the maximum cap for those categories with the necessary savings, investments and expenses. This will help you pay lower income tax at the end of the financial year.

Tax Benefits on a Home Loan

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