There are 3 common income tax deductions available to individuals in the Income Tax Act, 1961 and they can all be claimed simultaneously (alongside each other, in the same financial year). They are:
Deduction for tax-saver fixed deposits: (FD), PPF, NPS, NSC, Insurance Premium, Tuition Fees or ELSS Funds
Under Section 80C up to Rs 1.5 lakh
Deduction for NPS under Section 80CCD(1B) up to Rs 50,000
Deduction for health insurance premium under Section 80D up to Rs 25,000
In addition there are deductions on interest on education loans, supporting disabled persons, donating to charities etc. You can read more about them below.
Tax deduction under Section 80C
The Section 80C deductions are available for the following types of investments:
- 5 year tax-saver FD
- Public Provident Fund (PPF) – This is a government backed savings scheme with a tenure of 15 years.
- ELSS Fund – This is a type of mutual fund which invests at least 80% of their assets in equity.
- National Savings Certificate – This is a government backed savings scheme with a tenure of 5 years
- Senior Citizens Savings Scheme – This is a 5 year savings scheme with a high rate, aimed at senior citizens.
- Sukanya Samriddhi Yojana – This is a government supported savings scheme available to the parents of a girl child. It has a tenure of 21 years.
- Life Insurance Premiums – These premiums are tax-deductible and can apply to most types of life insurance including term plans, endowment plans and ULIPs.
- Tuition fees paid for the education of children (max 2 children).
In addition, there are certain 80C subsections which offer certain deductions (notable 80CCD for NPS). These sub-sections are as follows:
- Section 80CC: Section 80CC is applicable to investments made by taxpayers in several pension funds offered by insurance companies. This deduction can only be claimed by an individual taxpayer.
- Section 80CCD: Employer and employee contributions to the NPS up to 10% of salary are tax deductible. For self-employed persons, up to 20% of income can be invested in NPS to avail the tax deduction. This deduction is only available to individuals.
- Section 80CCD(1B): Voluntary contributions up to Rs 50,000 per annum to NPS are tax deductible under Section 80CCD(1B).
- Section 80CCF: This section offers tax deductions to individuals as well as Hindu Undivided Families for subscribing to long term infrastructure bonds. A maximum amount of Rs. 20,000 can be treated as exempted under this section. It applied to financial year 2011-12 and is no longer applicable.
- Section 80CCG– This section applies to RGESS (Rajiv Gandhi Equity Savings Scheme). It granted a deduction to investments made by the taxpayers in equity savings schemes that have been notified by the Central Government. These investments are subjected to a maximum limit of 50% of the investment amount of the tax payer and a maximum deduction of Rs 25,000. This section is no longer applicable.
The tax deduction under Section 80D is available to both individuals as well as Hindu Undivided Families (HUFs) for health insurance premiums for self and/or family. The limit under Section 80D is Rs 25,000 for ordinary taxpayers and Rs 50,000 for senior citizens. Those paying premiums for senior citizen parents can avail both deductions. The 80D deduction is not given to premium payments made in cash.
This section is available to individuals who face expenditure taking care of disabled persons. Under 80DD a deduction up to Rs. 75,000 deduction can be claimed (1.25 lakh for severe disability) by such individuals.This tax deduction is available to both resident individuals as well as HUFs and the dependants can be partners, children or parents of the taxpayer.
This section applies to expenditure on medical treatments for certain diseases like cancer, renal failure and AIDs. Both resident individuals as well as HUFs are eligible to claim income tax deductions under this section. The total permissible limit of Rs. 40,000 is available to the taxpayer and if the taxpayer is a senior citizen above the age of 60 years, the maximum limit increases to Rs. 100,000.
This deduction applies to interest on loan for higher education of self or dependant. There is no upper limit on the interest amount but the deduction is only available for interest paid for 5 years. Also note that this deduction applies to interest and not principal.
This deduction is applicable on the interest paid by a resident individual on a loan taken to buy a new residential property. The maximum limit for this deduction is Rs 3 lakh and it applies to loans up to 35 lakhs for a property worth 50 lakh or less. This deduction only applies to loan sanction in FY 2016-17 and hence it is no longer applicable.
This deduction is available on money donated to various charitable organisations. It has certain sub-limits, as mentioned below:
100% exemptions without limit – Donations to National Defence Fund, Prime Minister’s Relief Fund, National Illness Assistance Fund etc.
100% deductions up to 10% of adjusted total income Donation to local authorities, associations as well as institutions for family planning promotion, for development of sports etc.
50% exemptions without any limits– Donation Prime Minister’s Drought Relief Fund, Rajiv Gandhi Foundation, etc.
50% deductions up to 10% of adjusted total income Donations to religious services, organisations involved in charitable work other than family planning promotion, other institutions involved in charitable works, etc. It is important that the organisation/institution/NGO you are donating money to, under this section is registered with the Income Tax Department under Section 80G
Resident individuals who do not receive any kind of House Rent Allowance (HRA) on the amount paid as rent by them are eligible to avail this of deduction. The maximum limit under this section is Rs 60,000 per annum.
Donation given to an institution engaged in scientific research or rural development is entitled to a deduction under this section.
Deduction given to an Indian Company making a donation towards any political party or electoral trust. There is no maximum deduction limit under this section but these donations cannot be made in cash, only cheque/electronic transfer is allowed.
Deduction on donations made by an individual to a political party or electoral trust. There is no maximum deduction limit under this section but these donations cannot be made in cash, only cheque/electronic transfer is allowed.
Co-operative societies earning income through fishing, banking, cottage industry etc are eligible to claim tax deductions on their total 100% income. Cooperative societies earning profits from different businesses like renting warehouses, securities or properties etc also qualify to earn tax deductions between Rs. 50,000 to Rs 1 lakh depending on the service involved.
Indian authors earning profits on royalty through literary, artistic and scientific book sale are eligible for tax exemptions to a total of Rs. 3 lakh.
Indian individuals who earn profits through royalty of their patent rights qualify to earn tax deductions with a maximum limit of Rs 3 lakh. But here, the patent must be registered after the 1/3/2003 in order to qualify.
Interest on savings accounts in banks earned by individual taxpayers as well as Hindu Undivided Families are eligible for a deduction under this section up to a maximum of Rs 10,000. This section does not apply to senior citizens, who are instead covered by Section 80TTB
Interest on savings accounts and fixed deposits in banks earned by senior citizens is exempt up to Rs 50,000 per annum.
A resident Indian tax payer who is disabled in any manner such as autism, unsound mind etc. is eligible to claim tax exemptions to a maximum of Rs 75,000 per year under this section. Individuals with severe disability qualify to get a maximum of Rs 1.25 lakh tax deduction subjected to certain conditions.