Taxes collected by the Government make up the major portion of the government’s income. These taxes are then utilized to provide the basic services to the public like building infrastructure, providing health care etc. Every citizen of the country, with a yearly income of Rupees 2.5 Lakhs or more, should pay the taxes expected of them. This can be draining on the bank account of the individual. The Indian government has, therefore, come up with various schemes and policies which provide a deduction on these taxes.
Tax Deduction in accordance with Section 80C as issued by government
A tax deduction is a reduction in the total amount payable to the Income Tax Department of India. The government allows provision for tax benefits which can be availed by individuals and Hindu Undivided Families (HUF) as per Section 80C of Income Tax Act, an act which came into action on 1st April 2006.
There are many similarities between Section 80C and Section 88. But unlike Section 88, in Section 80C there is no sub-limit and it does not categorize individuals based on income or the tax bracket under which they fall. To avail the maximum benefits, one must plan his/her investment wisely and utilize various instruments available for a tax deduction.
The various investment schemes that are eligible for tax deduction are:
- Provident Funds.
- Life Insurance Policies.
- Tuition Fee (Max. two children).
- Purchase or Construction of Residential Property.
- Fixed Deposit (Min. 5 years) etc.
Investments that are eligible under Section 80C
ELLS Funds: ELLS or Equity Linked Savings Scheme allows huge savings of money for taxpayers on their tax payments. ELLS also allow one to gain profit from equities. Under ELLS, investing a sum of Rupees 1.5 Lac or more can gain tax exemption. Because of their equity exposure, any funds hold-off for more than a year becomes tax-free. ELLS is also a beneficial investment because it puts away the funds for 3 years (less than any other tax-saving investments). Though tax-saving funds do not guarantee returns, the best thing ELLS funds provide is, allowing taxpayers to earn the maximum returns (up to 12-15%).
Tax Deduction on Taxes as Mentioned under the Subsection of Section 80
There is an extensive list of eligible investments for tax deduction under Section 80C. Due to this, the Section has been divided into various sub-sections.
Tax deduction schemes provided under these sub-sections are as follows:
- Section 80 CCC: Under this section the tax deduction on investments in a pension plan is detailed. As per section 80 CCC of Income Tax Act, deduction of a maximum Rupees 1.5 Lakhs can be obtained on pension schemes.
- Section 80 CCD: This Section provides incentives on savings and investments, encouraging people to invest in various schemes provided by Central Government (especially in pension schemes). Contribution by both individuals and their employers are considered for a tax deduction, provided that less than 10% of the salary is subjected to the deduction. Only individual taxpayers are qualified for this tax benefit.
- Section 80 CCF: Both Hindu Undivided Families (HUF) and individuals can avail tax deduction of up to Rupees 20,000 on the long-term investments made in Infrastructure Bonds as notified by the Central Government.
- Section 80 CCG: Up to Rupees 25,000 can be claimed from the taxes for a list of specific individuals who are eligible under Section 80 CCG of the Income Tax Act. 50% of the amount invested in equity saving, as provided by Central Government, is also eligible for tax deduction.
- Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS): The Rajiv Gandhi Equity Saving Scheme (RGESS) was launched after the 2012 Budget. Only investors with gross total income of less than Rupees 12 Lakhs can invest in this scheme. Because Rajiv Gandhi Equity Scheme has been put to end starting from April 1, 2017, no deduction under section 80CCG will be allowed from AY 2018-19. You can obtain deduction under Section 80CCG until AY 2019-20 if you have already invested in the RGESS scheme in FY 2016-17 (AY 2017-18).
Tax Deduction Provided under Section 80D
Subdivisions of Section 80D:
Section D is further divided into two parts that contain detailed information for taxpayers to better understand the tax deduction schemes offered.
Deduction of Rupees 75,000 is made for minor disability and Rupees 1.25 Lakh for severely disabled people. This deduction is open for both individuals and HUFs if the dependent party is the spouse, parents, siblings or children.
Section 80 DDB: This section provides a deduction on payments made by families towards medical bills in case of treatment of certain diseases. The amount available for deduction is Rupees 40,000 which can be increased to Rupees 60,000 for senior citizens.
Tax Deduction under Section 80E
Section 80E of Income Tax Act has provision to ensure that education does not become an additional tax burden. Under this Section, a taxpayer can claim a deduction on the repayment of interest on education loan taken to pursue higher education. This deduction can be utilized by a taxpayer to either sponsor his/her child or ward’s education or for himself/herself. Only those individuals who have taken a loan from approved charitable organizations and financial institutions which are permitted for tax benefits, are eligible for this tax deduction.
Sub-Sections of Section 80E: Only those individual taxpayers who pay interest on the loan taken by them to buy a residential property are eligible for tax deduction under Section 80 EE. A sum of Rupees 3 Lakhs is the maximum amount permitted for deduction under this section.
Tax Deduction under Section 80G
Under Section 80G tax deduction is provided by Government on monetary donations. It is done to encourage people to make donations towards funds and charitable institutions. Every taxpayer qualifies for this tax deduction provision if they have a proof of payment made.
The limit of deduction on taxes under this section is based on the following factors:
- 100% deduction with no limits: 100% deduction can be claimed by any assessee if he/she donates money to funds like National Defense Fund, Prime Minister’s Relief Fund, and National Illness Assistance Fund etc.
- 100% deduction with certain limits: Assessees who are willing to donate to the local authorities, institutions or associations dedicated to family planning and development of sports are eligible for 100% tax deduction under certain qualifying limits.
- 50% deduction without any limits: 50% tax deduction can be availed by any assessee who donates to funds like PMs Drought Relief Fund, Rajiv Gandhi Foundation etc.
- 50% deduction with qualifying limits: Donations made by an assessee to religious institutions organization, local authorities for purposes other than family planning or sports development, can qualify for 50% tax deduction under certain qualifying restrictions.
Subdivisions of Section 80G
Section 80G is further divided into four sections to simplify the terms.
- Section 80 GG: All the taxpayers are eligible for tax deduction under this section if they do not receive rent allowance on the amount of rent paid by them (subjected that the maximum deduction is equal to 25% of their total income or Rupees 2000 per month. The lesser value of the two amounts can receive a deduction.
- Section 80 GGA: Any assessee who does not receive his/her income through profit or gain from a business or profession is eligible to claim a tax deduction on the taxable income under this Section. Any donation made by taxpayers can be considered for tax deduction under Section 80 GGA if the donation is made towards National Urban Poverty Eradication Fund.
- Section 80 GGB: Only Indian Companies are eligible to avail tax deduction under this section if monetary donations are made by them to a political party or electoral trust.
- Section GGC: Under Section 80 GGB any monetary donations or contributions made by an assessee to an electoral trust or political party are qualified for a tax deduction. This Section does not include donations made by an individual to local authorities and artificial judicial person.
Tax Deductions under Section 80 IA
Under Section 80 IA there are provisions for all taxpayers to utilize and claim tax deduction on the gains or profits generated via industrial activities. These industrial enterprises may include various fields like telecommunication, power generation, industrial parks, SEZ s (Special Economic Zone) etc.
The following are subsections of Section 80-IA:
- Section 80-IA: Section 80-IA offers provisions which can be utilized by SEZ (Special Economic Zone) developers to claim for tax deduction on their profits through development of SEZs. For eligible tax deduction, the Government should be notified about these SEZ on or before 1st April every year.
- Section 80-IB: A taxpayer can claim tax deduction under Section 80-IB, if he/she earns profits from hotels, ships, housing projects, cold storage plants, a multiplex theater, scientific research & development, convention centers, etc.
- Section 80-IC: All the taxpayers who earn profits from the states that are under the category of ‘special state’ can use the provisions for tax deduction under Section 80-IB. These states include Assam, Manipur, Mizoram, Tripura, Meghalaya, Himachal Pradesh, Uttaranchal, Arunachal Pradesh and Nagaland.
- Section 80-ID: Under Section 80-ID, any assessee who earns profits or gains from hotels and convention centers are qualified for deduction of tax, provided that their establishments are in specified areas.
- Section 80-IE: Assessees who have businesses or holdings in North-Eastern parts of India are eligible for deduction under this Section, subjected to certain qualifying conditions.
Tax Deductions under Section 80J
Section 80J of the Income Tax Act was amended to further include two subsections -80JJA and 80 JJAA
- Section 80 JJA: Section 80 JJA deals with tax deduction issued on profits and gains on businesses related to processing, treating or collecting biodegradable waste to produce products like fertilizers, bio-pesticides, biogas, etc. All the assessees who are involved in this business are eligible for tax deduction under this Section and they can claim 100% tax benefits on the profit made for 5 consecutive assessment years from the time their business was established.
- Section 80 JJAA: Tax deduction can be claimed by Indian Companies under Section 80 JJAA on the profits earned from the manufacture of goods in factories. Equivalent to 30% of deduction on the salary of a new full-time employee for a period of 3 assessment years. The accounts of such companies should be audited by a charted accountant who will then submit a report showing the returns. Those employees who are employed on contractual basis for a period that is less than 300 days in the previous year or those who work in administrative or managerial posts do not qualify for this deduction.
Tax Deduction under Section 80LA
Banks which have offshore banking units in Special Economic Zones, entities of International Financial Services Centres and banks which have been established outside India can avail tax deduction under Section 80 LA, in accordance with the laws of a foreign nation. As per the rules of the country, the assessees are eligible for 100% equivalent deduction on the income for the first five consecutive years and 50% deduction after five years, on the income generated through these transactions.Permission must be granted to such entities under the SEBI Act (Security and Exchange Board of India Act), Banking Regulation Act or entities should be registered under any such relevant law.
Tax Deduction under Section 80P
Section 80P is for the cooperative societies, under which as per certain qualifying condition, 100% tax deduction is permitted on the income earned by them. Cooperative societies that earn income through fishing, banking, cottage industries, milk supplied by members and sale of agricultural harvest grown by members qualify for this benefit.
Cooperative societies that are involved in other forms of business can qualify for tax deduction between Rupees 50,000 to Rupees 1 Lakh (depending on the type of work they are involved in).
Listed below are the deductions which can be claimed by all cooperative societies:
- On the income made by renting out warehouses.
- Income obtained via interest on money borrowed by other societies.
- Income from interest on securities or property income.
Tax Deduction under Section 80QQB
The tax deduction can be claimed on the royalty earned from the sale of books under Section 80 QQB. A maximum limit of Rupees 3 Lakhs can be claimed for deduction only by resident, Indian authors. Royalties from textbooks, journals, diaries etc. do not qualify for tax benefits, the royalties on literary, artistic and scientific books are tax deductible. In case the author earned royalties on his literature from a foreign country, the earning must be brought into the country within a specified time to avail tax benefits.
Tax Deduction under Section 80RRB
Section 80RRB caters to patent holders, offering them tax incentive. Under this Section, tax benefits are provided to resident individuals who earn income by means of royalty on their patents. Royalty of up to Rupees 3 Lakhs can be claimed under the condition that the patent is registered after 31st March 2003. If taxpayers receive royalties from abroad, then the money should be brought in the country within a specified period to qualify for tax deduction.
Tax Deduction under Section 80TTA
Tax benefits as per Section 80TTA is available for Hindu United Families and individual taxpayers. The tax benefit of up to Rupees 10,000 can be obtained on the interest earned from the money invested in a savings account in banks within India.
Tax Deduction under Section 80U
Individual taxpayers in India with disabilities can claim tax deduction under this section. Individuals who are certified as ‘Person with Disability’ by a qualified medical professional can obtain a deduction of maximum Rupees 75,000 per year. In the case of people with severe disabilities, a maximum sum of Rupees 1.25 Lakhs can be claimed on the medical bills, providing they fill certain criteria. Some of the disabilities which are eligible for tax deduction are autism, mental retardation, cerebral palsy etc.