There was a young professional named Anuj who had just received his salary slip for the month of February. He was happy to see that he had earned a good salary, but he knew that he had to file his income tax return soon and pay the tax liability.
He decided to do some research and consulted a tax expert to find out what his options were. The tax expert suggested that he could invest in tax-saving instruments. He liked the idea and decided to invest. This not only helped him save tax but also allowed him to earn some returns on his investment.
Now let us know the tax-saving options available in the income tax.
Section 80C
Section 80C is a provision under the Income Tax Act, which allows individuals to claim a deduction from their taxable income for various investments and expenses made during the financial year. The maximum deduction limit under this section is ₹1,50,000.
Some of the payments that are eligible for a deduction under Section 80 are Life Insurance Premium, Provident Fund, Subscription to certain equity shares, Tuition Fees, National Savings Certificate, Housing Loan Principal and other various items.
Section 80CCD(1B)
This section allows individuals to claim a deduction from their taxable income for the contribution made towards a pension scheme of the Central Government, excluding the deduction claimed under Section 80CCD(1).
The deduction limit under this section is ₹50,000 per financial year. This means that an individual can claim a deduction of up to ₹50,000 for the contribution made towards the Central Government pension scheme, in addition to the deduction claimed under Section 80CCD(1).
Section 80CCD(2)
Section 80CCD(2) is a provision under the Income Tax Act, which allows employees to claim a deduction from their taxable income for the contribution made by their employer towards the pension scheme of the Central Government.
The deduction limit under this section depends on the employer. If the employer is a Public Sector Undertaking (PSU), State Government or any other employer, the deduction limit is 10% of the employee's salary. However, if the employer is the Central Government, the deduction limit is 14% of the employee's salary.
Section 80D
Section 80D is a provision under the Income Tax Act, which allows taxpayers to claim a deduction from their taxable income for the payment made towards health insurance premium. If a taxpayer below the age of 60 years has paid health insurance premium for self, spouse, and dependent children, then he/she can claim a deduction of up to ₹25,000 for the financial year using Section 80D.
In addition to this, if the health insurance premium is paid for parents below the age of 60 years, then an additional deduction of up to ₹25,000 can be claimed. Therefore, a taxpayer below the age of 60 years can claim a total deduction of up to ₹50,000 (₹25,000 for self, spouse, and dependent children + ₹25,000 for parents).
If the taxpayer or any of the family members is above the age of 60 years, the deduction limit increases to ₹50,000 for health insurance premium paid for self, spouse, and dependent children, and an additional deduction of ₹50,000 can be claimed for health insurance premium paid for parents above the age of 60 years. Therefore, a taxpayer above the age of 60 years can claim a total deduction of up to ₹1,00,000 (₹50,000 for self, spouse, and dependent children + ₹50,000 for parents).
Section 80DD
Under this section an individual can claim a deduction of up to ₹75,000 for expenses incurred on medical treatments of dependents with a disability. This deduction is available for both children and parents, and the dependent must have a disability that is at least 40% or more.
In case of severe disability, where the disability is 80% or more, the deduction amount is increased to ₹1,25,000. This deduction can be claimed for expenses incurred on medical treatments, including nursing, training, and rehabilitation of the dependent.
Section 80DDB
Under Section 80DDB of the Income Tax Act, an individual can claim a deduction for expenses incurred towards the treatment of specified diseases for themselves or their dependents. The deduction limit is ₹40,000, but if the individual or dependent is a senior citizen, the limit is increased to ₹1,00,000.
Section 80G
Under Section 80G of the Income Tax Act, donations made to prescribed funds, charitable institutions, and other organizations are eligible for deduction from taxable income. Donations made to certain organizations are eligible for a 100% deduction, which means that the entire amount of the donation can be deducted from taxable income. Donations made to other organizations are eligible for a 50% deduction, which means that only 50% of the donated amount can be deducted from taxable income.
Section 80GG
Under Section 80GG of the Income Tax Act, self-employed individuals or those who do not receive House Rent Allowance (HRA) as a part of their salary can claim a deduction for the rent paid towards their accommodation. The deduction is subject to the least of the following:
- Rent paid minus 10% of the total income before claiming the deduction
- ₹5,000 per month
- 25% of the total income (excluding long-term capital gains, short-term capital gains under Section 111A, or income under Sections 115A or 115D)
The deduction is available for individuals who do not own any residential property and do not receive HRA from their employer or any other source. To claim the deduction, the individual must file Form 10BA along with the tax return and provide details of the rent paid and the landlord's name and address.
Section 80TTA
Under Section 80TTA of the Income Tax Act, non-senior citizen individuals can claim a deduction on the interest earned on their savings bank accounts. The deduction limit is ₹10,000, which means that the interest earned up to ₹10,000 can be claimed as a deduction from taxable income. The deduction is available only on the interest earned on savings bank accounts and not on any other type of deposit account. Senior citizens are eligible for a similar deduction under Section 80TTB with a higher limit of ₹50,000.
Section 80U
Under Section 80U of the Income Tax Act, a resident individual who suffers from a physical disability or mental retardation can claim a deduction of up to ₹75,000 for medical treatment and maintenance. In case of severe disability, where the disability is 80% or more, the deduction amount is increased to ₹1,25,000.
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