A Guide to Exemptions and Deductions Under Old Tax Regime for FY 2023-24 with Automated Form 16 Generation for 50 Employees

Section 80C - Deductions on Investments

Section 80C is one of the most popular and favourite sections amongst taxpayers as it allows them to reduce taxable income by making tax-saving investments or incurring eligible expenses.

• Who can claim Section 80C deduction?: Section 80C deduction can be claimed by Individuals and HUFs
• Maximum deduction allowed under section 80C? Rs 1.5 lakh every year from the taxpayer's total income. Companies, partnership firms, and LLPs cannot avail the benefit of this deduction.

Note: The maximum deduction under Section 80C, 80CCC and 80CCD (1) put together is Rs 1.5 lakhs. However, you may claim an additional deduction of Rs 50,000 allowed u/s 80CCD (1B)

Deduction limits under Section 80C, 80CCC, 80CCD (1), 80CCE, 80CCD (1B)

Section 80C Deductions List

ELSS funds

• Equity-Linked Savings Scheme is a type of mutual fund that invests in equity and equity-related instruments. ELSS funds have a lock-in period of three years.

National Pension Scheme

• The National Pension Scheme is a government-backed savings scheme for employees of private, public, and unorganised sectors. It cannot be used for investment by the armed forces. The NPS has a lock-in period for up to the age of 60 years.

ULIPs

• A Unit-Linked Insurance Plan (ULIP) is a life insurance plan that offers investment opportunities along with a life cover. It offers the choice to invest in equity, debt and hybrid funds to fulfil your financial goals. The returns from a ULIP can vary based on the funds you choose. ULIPs have a five-year lock-in period.

Tax-saving fixed deposits

• These types of fixed deposits offer tax benefits subject to conditions under Section 80C of the Income Tax Act, of 1961. They have a lock-in period of five years. Fixed deposits offer fixed returns.

Public Provident Fund

• PPF is a government savings scheme that can be used for long-term financial goals. It matures 15 years after the date of account opening. However, you can withdraw money from your PPF account every year from the seventh financial year.

Senior Citizen Savings Scheme

• It is a savings scheme for people over the age of 60. However, it can be used by people over 50 and 55 years under some special circumstances. It has a lock-in period of five years, after which it can be closed or extended for another three years.

Sukanya Samriddhi Yojana

• The Sukanya Samriddhi Yojana is a savings scheme backed by the Government of India. It is an investment option for parents who have a girl child. The plan matures when the girl child reaches the age of 21.

How much can be claimed under Section 80C?

• There are limits to the amounts that can be claimed for different activities and the total that can be claimed under these activities.
• The total amount that can be claimed under Sections 80C, 80CCC and 80CCD(1) combined is Rs 150,000/-.
• There is an option to increase the total deduction by an additional Rs 50,000/- under Section 80CCD. Here's how it works:
• *80 CCD(1) and 80 CCD(2) applies for contributions by employee and employer respectively.
• The deduction U/s 80CCD(2) and U/s 80CCD(IB) of Rs. 50,000/- is available on NPS additional deduction above Rs. 150,000/- deduction available under Sections 80C, 80CCC & 80CCD(1).

Section 10 of the IT Act, 1961

Section 10(13A): Exemption on House Rent Allowance (HRA)

The salaried employees are entitled to receive the allowance on the house rent paid, which is exempted from tax. The part of the salary an employee receives towards rent and accommodation is exempt from tax under this section. The following are the conditions:

• The actual HRA received by the employee
• HRA is 40% of the salary for the rented property in non-metro cities or 50% for metro cities.
• Actual rent paid is less than 10% of salary.

Section 10(14): Exemption of Special Allowance

An employer can offer a special allowance to its employees to support the employee's expenses. These expenses should be incurred by the employee while performing his duties. There is no specified limit on the amount an employer provides his employee as a special allowance, but allowances must be utilised only for the mentioned purpose.

This section is further subdivided into two parts, namely,

1. Exemption of Allowance under Section 10(14) (i)

• Travel Allowance: This allowance is provided by the employer to meet the employee's expense of travelling while performing office duties.
• Daily Allowance: The employee can receive a daily allowance to meet his daily expenses. Such a type of allowance is given when the employee is not at his actual place of duty.
• Uniform Allowance: Employees who need to purchase or maintain their uniforms while on duty can receive a uniform allowance.
• Academic or Research Allowance: The allowance is granted to encourage research, academic or training pursuits among the employees.
• Helper Allowance: This allowance is given to meet the expense of hiring a helper to perform office duties.

2. Exemption of Allowance under Section 10(14) (ii)

The allowance is granted to meet expenses that are incurred while performing one's duties. If these allowances are received above the prescribed limits, they are then taxable in the hands of the employees. For this section, the allowances are prescribed in Rule 2BB.

• Children's Education Allowance: An allowance of Rs. 100 each month per child, up to two children is given.
• Tribal Area Allowance: An allowance of Rs. 200 per month for tribal areas, schedule areas, and agency areas.
• Compensatory Field Area Allowance: The employee can claim either a Compensatory Field Area Allowance of Rs. 2,600 per month or a Border Area Allowance.
• Border Area Allowance: This allowance is allowed for army personnel and ranges from Rs. 200 to Rs. 1,300 per month.
• Special Compensatory Allowance: For employees working in hilly regions of the country, allowances like high altitude allowance, uncongenial climate allowance, snowbound area allowance, or avalanche allowance are offered, which range from Rs. 300 to Rs. 7,000 per month.
• Counter Insurgency Allowance: Individuals from the armed forces living away from their homes receive this allowance with a limit of Rs. 3,900 per month.
• High Active Field Area Allowance: Members of the armed forces receive this allowance with a limit of Rs. 4,200 per month.
• Island Duty Allowance: Members of armed forces posted in the area of Andaman and Nicobar Islands and Lakshadweep Group of Islands are eligible to receive this allowance with a limit of Rs. 3,250 per month.

Deductions under Section 16

Section 16 of the Income Tax Act provides three different types of tax deductions on salary income. These deductions help lower the tax liability. The deductions under Section 16 include the following:

• Standard deduction
• Deduction for entertainment allowance paid by the employer
• Deduction for professional tax charged on the salary income

Standard Deduction under Section 16 (ia)

The standard deduction under Section 16 (ia) is a flat deduction allowed from the salary income. As mentioned above, the limit of standard deduction u/s 16 (ia) was changed in the Interim Budget 2019 from INR 40,000 to INR 50,000 to provide higher tax relief to salaried individuals.

Every financial year, a salaried individual can claim the lower amount from the below two as the standard deduction:

• The actual salary amount or
• The standard deduction, which is Rs. 50,000, whichever is low

Entertainment Allowance under Section 16 (ii)

The entertainment allowance is initially included under the head 'Salaries' in the salary income, and after that, a deduction is provided on the basis that is counted in the following paragraph:

In the case of a government employee (i.e., an employee of the State or Central Government), the minimum of the below-mentioned are deducted:

• 20% of the basic salary
• Rs. 5,000
• Entertainment allowance amount that was granted during the last year.

To determine the entertainment amount allowance that is deducted from the salary, the below points must be considered:

• The 'salary' of an individual for this purpose excludes the benefits, allowance, and other perquisites.
• The actual amount that is expended towards the entertainment (out of the allowance of entertainment received) is not considered.
• The deduction is calculated based on the allowance amount received and not on the amount spent.

Tax on Employment or Professional Tax under Section 16 (iii)

The tax on employment or professional tax levied by some States in Article 276 of the Constitution is granted as deducted.

In this situation, the following points must be kept in mind:

• The deduction is available only in the year when professional tax is paid.
• The Income Tax Act in Article 276 of the Constitution has no ceiling in monetary terms. Any State Government is not eligible to impose more than Rs. 2,500 annually as professional tax. As per the Income Tax Act, whatever professional tax an individual has paid during the last year is deductible.
• If an employer pays the professional tax on behalf of an employee, then it is included in the employee's salary under 'perquisite,' and after that, the equal amount is allowed as the deduction under 'professional tax' deducted from the salary.

Deductions under Chapter VI A

• 80D: Chapter VI A deductions under this section are made on health insurance premiums and premiums paid for critical illness rider of life insurance policies. The max tax deduction limit under Section 80D is ₹1 lakh for senior citizen paying health insurance premiums for themselves and their parents. A premium of up to ₹25,000 qualifies for deductions if you are a normal taxpayer. It is ₹50,000 for yourself and your family if you are a senior citizen.
• 80DD: The section deals with deductions on maintenance that include medical treatment of a dependent who is a person with a disability. The deduction limit under it is set as ₹75,000.
• 80DDB: Expenses made on medical treatment from an oncologist, neurologist, urologist, haematologist, immunologist, or any other specialist are covered under this section for deductions under Chapter VI A. The deductions limit is ₹40,000.
• 80E: There is no upper limit on deductions in this section. Section 80E tax benefits apply to interest payments made towards education loans taken for higher education.
• 80EE: This applies to loans taken for purchases of residential house property and sanctioned between 1st April 2016 to 31st March 2017. Chapter VI A dictates that the upper limit for deductions here is ₹50,000. However, this benefit can only be availed by a first-time home buyer purchasing an affordable housing property.
• 80EEB: The section applies to purchasing an electric vehicle via a loan. The deduction is given on interest, and the maximum limit is ₹1.5 lakh.
• 80G: It deals with donations to funds or charitable institutions. The nature of the donor determines the deduction limit. It may be up to 100% of the donated amount.
• 80GG: The maximum deduction limit here is ₹5,000 per month or 25% of total yearly income, whichever is less. This Chapter VI A deduction applies to salaried individuals who do not have a House Rent Allowance salary component.
• 80GGA: The complete amount donated for scientific research or rural development can be claimed for deductions under this section of Chapter VI A.
• 80GGC: The non-cash donations made to political parties qualify for deductions under this section. The deduction allowed under it is 100%.
• 80TTA: The maximum amount that can be claimed under this deduction of Chapter VI A is ₹10,000. The section applies to interest on savings bank accounts. The limit doesn't apply to senior citizens.
• 80TTB: This tax benefit is available only to senior citizens, and a tax deduction of ₹50,000 annually can be claimed under it.
• 80TTB: is also applicable to interest on savings and fixed deposit accounts held with banks or India Post Office.
• 80U: This is relevant for people with disability. The deduction amount varies with the kind of disability. The overall limit under this Chapter VI A deduction is ₹1.25 lakh annually.
• 87A: This tax rebate is available tax deduction of ₹12,500/- who’s Taxable Income annually not more than ₹ 5,00,000/-can be claimed under it.

Download from the Attached File Automatic Income Tax Form 16 which can be prepared at a time 50 Employees Form 16 for the FY 2023-24 as per Budget 2023