The Income Tax Act of 1961 specifies certain deductions that one may claim while filing income tax returns annually. A complete knowledge about these specifications is necessary not only to know how much net tax you have to pay at the end of the year but also to plan your investments in a manner that you gain maximum benefit out of each.
Here let us have a look at what the different sections of Income Tax Act, 1961 lays down so as to gain a deeper insight to tax deduction clauses.
Section 80C of Income Tax Act clearly mentions that a taxpayer can claim a tax deduction of a maximum of Rs. 1,50,000 for a financial year (FY) in case he happen to have made investments in the options that the section specifies. The deductions are available to an individual as well as an HUF.
The options that Section 80C of Income Tax Act mentions as investment options subjected to income tax benefits are:
- Investment In PPF
- Payment of Life Insurance Premium
- Employee’s share of PF contribution
- Principle reimbursement of home loan
- Children’s tuition fees
- Investment In Sukanya Samriddhi Account
- Five year deposit scheme
- Senior Citizen Savings Scheme
- Sum paid to put has e deferred annuity
- Contribution to Pension Fund set up by Mutual Fund or UTI
- Subscription paid to a company engaged in providing housing finance or a deposit scheme of a public sector
- Subscription paid to notified deposit/security scheme
- Subscription paid to Home Loan Account scheme of National Housing Bank
- Contribution to annuity notified plan of LIC
- Subscription paid to notified bonds of NABARD
- Subscription paid to debentures/equity shares of approved issue
It is important that you submit a declaration disclosing your investments with necessary proof while filing income tax returns in order to avail the benefits of tax deduction.
Under this section, the amount paid by an individual in any annuity policy of LIC or any other insurer for that matter qualifies as a deduction while filing tax returns. However, pension or any other interest received or the amount received including bonus accrued on the surrender of the policy is taxable in the year of receipt.
Section 80CCD lays down provisions for deductions available on the amount contributed to the pension account by an individual.
In case the taxpayer is an employee that maximum deduction that is allowed is 10% of the salary. The taxpayer being self-employed may claim 20% of the gross total income as a deduction or Rs. 1,50,000 whichever is less.
An additional deduction of Rs. 50,000 can also be claimed under Section 80CCD (1B) for the contribution of an individual to their NPS account. Also, contribution to Atal Pension Yojna are counted in as eligible for deductions.
Employer’s contribution to employee’s pension account is subjected to an additional deduction up to 10% of the salary of the employee.
It is to be noted that Section 80C, 80CCC, 80CCD (1) has a combined maximum limit of Rs. 1,50,000 which may be availed by an individual.
Deductions On interest received on savings account are made eligible for Income tax deductions under this section.
Rs. 10,000 is the maximum amount on which deductions can be claimed having received interest from savings account. The interest received is included first in other income and the deductions may be either the total earned interest or Rs. 10,000 whichever is lesser. It is to be noted that interest received from any savings bank account, post office or co-operative society is only eligible for deductions while interest received from recurring deposits, fixed deposits, and cooperative bonds are not eligible for the same.
This section specifies the treatment for the interest income received by the senior citizens. The interest income will be allowed a deduction from the total income up to a maximum of Rs. 50,000. This shall also mark that no further deduction on Section 80TTA is allowed.
Under this section a deduction is offered to all individuals who are staying on rent and paying a fixed amount as rent. This is not for the employees who own any self-occupied residential property anywhere or where neither the taxpayer nor the spouse or minor child holds any residential property at the place of employment. Only in the case that house rent is paid and HRA is not received by the employer it is eligible for Income tax deductions.
The deduction shall be any one of the following:
- Rent paid minus 10% of the adjusted total income
- 25% of the adjusted total income
- Rs. 5,000 per month
This section lays down provisions on deduction of the amount of interest paid during the year on educational loan for higher studies. This loan might have been availed by the taxpayer for himself or his spouse or children or for any other student of whom the taxpayer has to be a legal guardian. The deduction is available for a maximum of 8 years. However, there is no maximum limit of deduction.
This section lays down clauses for deduction of premium paid for health Insurance during the year. A maximum of Rs. 25,000 as deductions can be claimed for the insurance of self, spouse, or a dependent child. An additional of Rs. 25,000 can be claimed as a deduction for the insurance of parents in case they are of the age of 60 years or below and Rs. 50,000 in case they are above the age of 60 years.
Income Tax and deductions are a vast topic to know about. Here were those among the most important clauses that one must have an idea about.