Deductions under Income tax
Income Tax Deductions refer to specific expenses, investments, and contributions that you can subtract from your total income before calculating the taxable income. The primary aim of tax deductions is to reduce the taxpayer's liability by lowering the amount of taxable income, thereby decreasing the overall tax burden.
Tax deductions are provided under various sections of the Income Tax Act, 1961, and they are available to individual taxpayers, Hindu Undivided Families (HUFs), and sometimes companies. By claiming these deductions, taxpayers can lower their total taxable income and, as a result, reduce the amount of tax they owe to the government.
How Deductions Work:
Total Income: This is the income that you earn during the financial year (salary, business profits, capital gains, etc.).
Deductions: Subtract deductions from your total income.
Taxable Income: The remaining income after applying deductions is called taxable income.
Tax Calculation: The tax is then calculated based on your taxable income using applicable tax slabs.
Types of Income Tax Deductions
Here are some key sections under which income tax deductions are available:
1. Section 80C – Deductions for Investments
Section 80C provides tax deductions for certain investments made by individuals. The total deduction under this section is capped at ₹1,50,000 per year.
Eligible Investments & Expenses Under Section 80C:
Public Provident Fund (PPF)
Employee Provident Fund (EPF)
National Savings Certificates (NSC)
5-year Fixed Deposit with Banks and Post Offices
Tax-saving Fixed Deposit (Minimum 5-year tenure)
National Pension Scheme (NPS)
Life Insurance Premiums (Paid for self, spouse, or children)
Children's Tuition Fees (Maximum 2 children)
Principal Repayment of Home Loan
Senior Citizens Savings Scheme (SCSS)
Important Notes:
The total investment under 80C can be combined for all eligible instruments.
The maximum deduction of ₹1.5 lakh applies to the aggregate total of investments and expenses under Section 80C.
2. Section 80CCG – Rajiv Gandhi Equity Savings Scheme (RGESS)
eductions Available:
Up to 50% of the amount invested in eligible equity instruments under the Rajiv Gandhi Equity Savings Scheme.
The maximum deduction available is ₹25,000 per year.
Eligibility:
This deduction is available only for first-time investors in the stock market, with an annual income of less than ₹12 Lakh.
3. Section 80D – Health Insurance Premiums
Section 80D allows deductions for premiums paid for health insurance policies.
Deductions Available:
For Self & Family:
Up to ₹25,000 (for individuals below 60 years).
Up to ₹50,000 (for senior citizens above 60 years).
For Parents (additional):
Up to ₹25,000 (if parents are below 60 years).
Up to ₹50,000 (if parents are senior citizens above 60 years).
Important Notes:
Includes premiums paid for medical insurance and preventive health check-ups.
Preventive health check-ups are deductible up to ₹5,000 within the above limits.
4. Section 80DDB – Medical Treatment of Specified Diseases
Section 80DDB allows a tax deduction for expenses incurred for medical treatment of specified diseases.
Deductions Available:
₹40,000 for treatment of diseases like cancer, neurological diseases, etc.
₹1,00,000 for senior citizens (age 60 and above).
5. Section 80E – Education Loan Interest
Section 80E allows a tax deduction on the interest paid on education loans.
Deductions Available:
Deduction is allowed for interest paid on loans taken for higher education.
There is no cap on the amount of deduction for interest, but it is allowed for a maximum of 8 years.
Important Notes:
Applicable for loans taken for the taxpayer, spouse, children, or a student for whom the taxpayer is a legal guardian.
6. Section 24(b) – Home Loan Interest
Section 24(b) provides a tax deduction for interest on home loans.
Deductions Available:
Up to ₹2,00,000 per year for self-occupied property.
No limit for a let-out property.
Important Notes:
The property must be self-occupied or rented out.
The deduction is allowed only for the interest portion of the home loan.
If the house is rented out, no upper limit is applicable.
7. Section 80G – Donations to Charitable Institutions
Section 80G allows deductions for donations made to recognized charitable organizations.
Deductions Available:
100% deduction for donations to charitable trusts that serve social, educational, and scientific causes.
50% deduction for donations to other registered organizations (like political parties or some types of NGOs).
Limitations and restrictions may apply for specific donations.
8. Section 10(14) – Special Allowances
Certain special allowances are exempted from income tax under Section 10(14).
Eligible Allowances:
House Rent Allowance (HRA): Exempt, subject to specific conditions.
Travel Allowance: For expenses incurred during official travel.
Conveyance Allowance: For traveling from home to work.
9. Section 80TTA – Interest on Savings Accounts
Section 80TTA provides a deduction of up to ₹10,000 on the interest earned from savings accounts.
Deductions Available:
Available for individuals and Hindu Undivided Families (HUFs).
Interest earned from savings accounts with banks, post offices, and co-operative banks is eligible.
Important Notes:
The deduction is allowed only for savings account interest, not for fixed deposits or recurring deposits.
10. Section 80U – Disability
Section 80U provides deductions for individuals with disabilities.
Deductions Available:
Up to ₹75,000 for individuals with disabilities (disability of 40% or more).
Up to ₹1,25,000 for severe disability (80% or more).
Important Notes:
The disability must be certified by a medical authority.
11. Section 80EEA – Additional Home Loan Interest
Section 80EEA offers an additional deduction for interest on home loans under certain conditions.
Deductions Available:
Up to ₹1,50,000 for first-time homebuyers (on home loans taken between 1st April 2019 and 31st March 2022).
The loan amount should be up to ₹35 lakh and the property value should be up to ₹50 lakh.
12. Section 80G – Donations to Charitable Institutions (Expanded)
We mentioned Section 80G above, but it's worth noting that some charitable contributions are 100% tax-deductible, while others are 50% tax-deductible.
Deductions Available:
Donations to charitable organizations with 80G approval can be 100% or 50% deductible, depending on the organization.
Examples include donations to PM CARES Fund, National Defence Fund, etc.
13. Section 80GG – Rent Paid (For Self-Employed and Others)
Section 80GG provides a tax deduction for rent paid if the taxpayer does not receive HRA (House Rent Allowance).
Deductions Available:
The lesser of the following is allowed:
₹5,000 per month
25% of total income
Actual rent paid minus 10% of total income
14. Section 80GGB – Contributions to Political Parties
This section allows deductions for contributions made to political parties or electoral trusts by companies or organizations.
Deductions Available:
100% of the amount contributed to registered political parties or electoral trusts is eligible for a tax deduction.
Important Notes:
The contribution must be made by cheque or electronic transfer to qualify.
15. Section 80GGC – Donations to Political Parties
Section 80GGC provides a deduction for donations made to political parties.
Deductions Available:
100% of the amount donated to a political party is eligible for tax deductions.
The donation must be made by individuals, HUFs, or other entities.
Important Notes:
The donation should be made by cheque or electronic transfer to qualify.
16. Section 80JJA – Deduction for Employment of New Employees
This section provides tax benefits for businesses and individuals who hire new employees.
Deductions Available:
A 100% deduction of wages paid to new employees in a specified business.
Eligibility:
Available to taxpayers who hire more than 100 employees.
17. Section 80QQB – Royalty Income from Books
This section provides tax benefits for authors receiving royalty income from the sale of books.
Deductions Available:
Up to ₹3,00,000 for royalty income earned from books written by an author.
18. Section 80RRB – Royalty on Patents
Section 80RRB allows a deduction on royalty income earned from patents.
Deductions Available:
Up to ₹3,00,000 for royalties or income earned from patents.
Important Notes:
Available to inventors, and the patent must be registered under the Indian Patents Act.