Tax deductions decrease the general tax liabilities of taxpayers and help one save on taxes. The amount of deduction differs depending on the class of tax that one claims. A taxpayer can seek a tax deduction for expenses incurred in medical bills, tuition fees and contributions funded towards a charitable cause. Taxpayers can also benefit from tax exemption or deduction by investing in a variety of schemes such as in life insurance plans, retirement savings schemes and national savings schemes.
Under Section 80, a taxpayer will receive tax deduction for payment made towards;
- Life Insurance.
- Contribution to one’s Provident Fund or contributions to Public Provident Fund.
- Mutual Fund subscriptions.
- Tuition fees paid towards a taxpayer’s offspring.
- Repayment of the principle amount taken towards housing loan etc.
These investments are applicable for a tax deduction if the taxpayer himself/herself is named as the claimant or either an immediate family member is mentioned as the claimant. The Provident Funds Act states that an NRI or non-resident Indian will not be eligible to invest in Public Provident Fund (PPF). An NRI can, however, invest in PPF under the name of his/her spouse or child if they happen to be residents of India.
Income Tax Deductions under Section 80C
Section 80C of the Income Tax Act offer the benefit of the deduction for taxes paid on a variety of things. Individual taxpayers and Hindu Undivided Families (HUF) are eligible for this benefit. Under Section 80C, any legit taxpayer can claim for deductions of up to Rupees 1.5 lacs every year.
Investments that are eligible for tax deduction under Section 80C are;
- Payment made on life insurance policies (for oneself, spouse or children).
- The contribution made towards provident fund.
- Educational tuition fees incurred for two children or less.
- Expenditures for construction or purchase of a residential property.
- Deposits made for fixed deposits with a minimum plan tenure of 5 years.
- Investments towards mutual funds, senior citizens saving schemes, purchase of NABARD bonds, etc.
Income Tax Deductions under Section 80D
Under Section 80D of the Income Tax Act, taxpayers can avail tax deductions for investments made towards Health Insurance Policy. The deduction is also applicable for investments towards Central Government Health Plan, made on behalf of immediate family members. A taxpayer can claim a deduction of up to Rupees 15,000 (premium towards the insurance for a spouse, dependent children or oneself) and up to Rupees 20,000 (for 60 years and above).
Subjected to the mode of payment other than in cash, individual taxpayers and Hindu Undivided Families are eligible for deduction under Section 80D.
Income Tax Deductions under Section 80E
Section 80E of the Income Tax Act has been structured by the Indian government to ensure that expenses incurred for one’s education do not become an extra liability in the future. Section 80E allows a taxpayer to avail deduction on taxes on the payable interest upon the educational loan. A taxpayer can avail this benefit either for himself/herself or for sponsoring education for his/her child. Individual taxpayers alone are eligible for the provision under Section 80E.
Income Tax Deductions under Section 80G
Taxpayers who donate funds to charitable institutions and organisations are eligible for tax return benefits under Section 80G. Every type of taxpayer can avail this benefit with proof of verification of the donation made.
The amount for tax benefits is decided upon a few factors;
- 100% tax exemption without qualifying criteria: When donations are made towards funds like National Defence Fund, Prime Minister’s Relief Fund, National Illness Assistance Fund etc. then tax exemption can be as high as 100% of the donated amount.
- 100% tax deduction under certain criteria: Donations funded towards local authorities and public associations which work for family development or promotion of sports will be eligible for 100% deduction.
- 50% tax exemption without qualifying criteria: When a taxpayer makes donations towards the Prime Minister’s Drought Relief fund, Rajiv Gandhi Foundation, etc. he/she become eligible for 50% deduction on the payable tax.
- 50% tax deduction under certain criteria: Donations funded towards religious institutions or local charities are eligible under a certain qualifying limit for this deduction.
Income Tax Deductions under Section 80J
Section 80J of the Income Tax Act has been modified by adding two subsections, 80JJA and 80 JJAA under it.
- Section 80 JJA relates to tax deductions employed on profits or gains upon the earnings of taxpayers who are in the business of processing, treating and collecting of bio-degradable waste for producing biological products like bio-fertilizers, bio-pesticides, bio-gas etc. Any taxpayer who is on the field stands eligible for deductions under Section 80JJA. The deduction percentage can be summarised as equal to 100% of the profits earned within the first 5 years of business.
- Indian companies that earn profits from manufacturing of factory products are eligible for tax deductions under Section 80 JJAA. The tax deductions for a period of 3 Assessment Years (AY), equivalent to 30% of the salary of new, full-time employees can be claimed. If an employee is working on a contract for a tenure of fewer than 300 days, employees who are employed in managerial post or employees in administrative positions will not qualify for deductions under Section 80JJAA.
Income Tax Deduction under Section 80LA
Income tax deductions as per Section 80LA is applicable to the following entities;
- Scheduled Banks with offshore banking units in the Special Economic Zones.
- Entities of International Financial Services Centres.
- Indian banks which have been established outside India, in the specification to the laws of the foreign nation.
Entities falling under Section 80LA are eligible for tax deductions of up to 100% for the first 5 years and 50% deduction the following years after the first 5 years. To avail this benefit, the entity must have obtained relevant permission, either under the SEBI Act, Banking Regulation Act or are registered under any other relevant law.
Income Tax Deduction under Section 80P
Section 80P offers tax deduction benefits to cooperative societies. Under certain qualifying criteria, Section 80P provides 100% deduction to cooperative societies who earn their income through cottage industries, fishing, banking, the sale of agricultural harvest, supply of milk etc.
Under Section 80P, eligible claimants can avail tax deduction ranging from rupees 50,000 to Rupees 1 lac.
Any cooperative society can claim the deduction if they fall into the following category;
- Income earned through renting out of warehouses.
- Income earned through interest on money given as loan to other societies.
- Income profited through interest from securities or properties.
Income Tax Deduction under Section 80QQB
Royalties earned through the sale of books are eligible for tax deduction under Section 80QQB. For resident Indian authors, the claim deduction is up to rupees 3 lacs.
- Royalty earned through literary, artistic and scientific books are tax deductible.
- Royalties earned from textbooks, journals, diaries etc. do not qualify for tax benefits.
- If an author earns royalty from abroad, then he/she must first produce the royalty amount to the authoritative department of India within a specified time to avail tax deductions under Section 80QQB.
Income Tax Deduction under Section 80RRB
When an Indian resident receives income through a royalty on his/her patent, then Section 80RRB offers tax incentives to the patent holders, based on tax relief. A royalty of up to Rupees 3 lacs can be claimed as a tax deduction by the taxpayer, subjected that the patent is registered after the 31st of March 2003. Individuals who earn royalty from foreign countries must first produce the royalty amount to the authoritative department of India within a specified time to avail tax deductions under Section 80RRB.
Income Tax Deduction under Section 80TTA
Under Section 80TTA, any Hindu Undivided Families (HUF) and individual taxpayers can claim for deductions on the interest earned upon money invested in savings accounts within India. This section provides tax deductions of up to Rupees 10,000 per year.
Income Tax Deduction under Section 80U
Only residents of India who are individual taxpayers with disabilities are eligible for deduction under Section 80U. Taxpayers who can produce certified proofs issued by a government authorised medical practitioner can claim deductions of up to Rupees 75,000 per year. Individuals with a case of severe disability are entitled to benefit from a deduction of Rupees 1.25 lacs, after qualifying certain criteria.
Frequently Asked Questions
Q. Does a taxpayer become eligible for a tax deduction for premiums made by cash?
No, one cannot claim deductions on premiums which have been paid in cash.
Q. Can a parent claim for deductions on premiums made on behalf of his/her working children?
No, a parent can claim deductions only if the premium is paid on behalf of dependent children.
Q. Can one claim a tax deduction on the service tax paid towards health insurance schemes?
Service taxes paid on health insurance cannot be claimed for a tax deduction as they are paid against the premium amount which is collected by respective agencies.
Q. Can one claim deductions for health check-ups for self and dependent family members?
An amount of up to Rupees 5,000 deduction can be claimed for health check-ups. The total deduction amount is applicable for the dependent family member and the claimant.