Is heavy tax
bothering you? Don’t worry, income Tax
Exemptions and deductions, give you plenty of
opportunities to save tax. By using these exemptions and deductions wisely, you
can reduce your tax substantially. In fact exemptions and deductions reduce the
tax liability in lacs. In this post, I am listing the available
exemptions, and deduction under income tax act. Use these and enjoy the tax
saving.
Exemptions on Allowances Under Section 10 of Income Tax Act
1. House Rent Allowance (HRA)
You may have not
noticed but HRA tax exemption may give you maximum benefit. I am missing this
deduction after the self employment. However, this exemption is a real
necessity. It is justified and required.
You get a job
and shift to another city. Because of your job, you live in a different place.
You are forced to live in a rented accommodation. The rented flat is not by
choice but because of the duty. Hence, the expense on rent is because of your
job. You can’t avoid this, even if you wish. Therefore, government exempt the
rent from income tax. However, you are not entitled to get this exemption
automatically. Rather, your employer should pay the House rent allowance with the salary.
The HRA paid by the
employer is considered for the exemption. I don’t get the HRA exemption because
I don’t have an employer who can pay HRA. However, full
HRA is not considered for income tax exemption. It is give according to the
following formula.
HRA Exemption Formula
Exemption
of HRA is a minimum of these three.
- Actual HRA received.
- Rent paid less 10% of salary.
- 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi). In this case, salary is basic plus dearness allowance (basic+DA).
Download H.R.A. Exemption Calculator
Leave Travel Allowance
If your employer
also gives you an allowance for the vacations, It is also entitled for the
income tax exemption. Employers give Leave travel allowance to its employees.
you can claim LTA only if you have actually travelled. You must be on leave
during this travel. Only travel fare is considered for the exemptions. Hotel
stay and food is not entitled. You can claim income tax exemption only on the
travel of yourself and family. The LTA can be claimed only twice in a three
year block. You have to produce the proof of travelling.
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Transport
Allowance
You go to your
office or workplace from you house. You also spend on the local transport. This
expenditure is also forced upon you. Therefore, the government has exempted
transport allowance from the income tax, provided your employer gives you the
transport allowance. You don’t need to give any receipt
of this local travel. However, the tax
exemption is limited to Rs 1600/month.
Children Education Allowance
Children Education
allowance is also exempted from income tax. Your employer must give this
allowance for availing the tax exemptions. It is Rs. 100 per month per
child up to a maximum of 2 children.
Hostel Subsidy
This is another tax
exemption related to your child’s education. It is Rs. 300 per month per
child up to a maximum of two children. Your employer must give this allowance.
Other Allowance Eligible For Income Tax exemptions
Other Allowance Eligible For Income Tax exemptions
Uniform Allowance,
Special Compensatory Allowance, High Altitude Allowance, allowances
applicable to North East, Compensatory Field Area Allowance, Counter
Insurgency Allowance, High Active Field Area Allowance, island duty allowance,
tribal allowance etc. These allowances are tax-free, but you need to produce
the proof of the actual expense in some cases.
Income Tax Exemption on Interest Paid on Housing Loan
This Exemption
is also related to your accommodation because of the job. After shifting
to a different place, you may opt for your own house instead of rented
accommodation. If you take home loan for the house, the interest payment
is tax exempted. You can get
maximum exemption of Rs 2 lakh on housing loan interest.
There are some conditions for this exemption.
The house should be
self-occupied. You may get this exemption if your home is under
construction. however the construction should complete within 3
years.
Tax Deductions Under Section 80C
The Government
wants to encourage some certain types of investments and expenses. To achieve
this goal it gives the benefit of tax deductions under section 80C. There are
many investments and expenses under section 80C, 80CCC and 80CCD. However, the
total deductions under this section are limited to Rs 1.5 lakh.
- Employee Provident Fund
- Pension/ Annuity Schemes
- Life insurance premium
- Tax Saving mutual fund (ELSS)
- Home loan principal payment
- Sukanya Samriddhi Account
- Tuition fees of children
- PPF Account Contribution
- National Saving Certificate
- Tax-saving fixed Deposit
- Post office time deposits
Section 80CCC: Deduction For Annuity Plan
You can also get a
deduction for the annuity plan of insurance companies.
There are some limitations on this deduction.
- You can’t contribute more than 10% of your salary or gross income.
- You can’t enjoy the deduction of more than Rs 1 lakh in a year.
Section 80CCD(1) : Contribution For Pension Plan
Similar to
annuities, contribution in pension plans is also eligible
for tax deduction. For example contribution to National Pension Scheme (NPS)
will get deduction benefit under this rule.
It is also limited
to 10% of salary or 20% of gross income (if not salaried).
Section 80CCD(2): Contribution To Pension Plan By employer
This section gives
you extra tax saving opportunity. If your employer contributes into your pension plan, it would be also tax-free. This contribution
does not come under the overall limit of 1.5 lakh.
You can ask your
employer to contribute 10% of your salary into your pension plan. It will
not affect your employer financially, but you would be able to save some more
tax.
Section 80CCD(1B): Max Exemption Rs, 50,000/- for contribute to the Pension Fund.This Exemption as a Additional Exemption of 80C threshold Rs. 1.5 Lakh.
Deductions Under Chapter VIA of Income Tax Act
Section 80D: Medical Insurance Deduction
One must use
this tax saving opportunity. Section 80D can give
you a tax deduction of up to Rs 55,000. Medical insurance of self, family and
parents are eligible for tax deduction under section 80D. Rs. 25,000/- for below age if 60 Years and Rs. 30,000/- fir Sr.Citizen.
Section 80DD: Deduction For Maintenance of Disable Dependent
Under this section,
one can get extra tax deduction of Rs 50,000. To avail this deduction, you must
fulfill some conditions.
1. A person with
a disability must be dependent upon you. The disability may be
physical or mental.
2. You must produce
a certificate from the doctor.
3. You must incur
the expense of treatment, rehabilitation, nursing and training.
If you deposit any
amount in any scheme for the disabled, it would be also eligible for tax
deduction.
If dependent person
is with severe disability, you can claim deduction up to Rs 1,00,000.
Section 80DDB: Serious Illness Deduction
This deduction is
for the treatment of serious illness. An assessee can get an income tax
deduction of Rs 40,000 under this section.
- The deduction is for the expense of illness of self or dependent.
- The illness should be within the prescribed list.
- There should be real expense. Any reimbursements of insurance claims should be subtracted.
- You must give a certificate from the government doctor.
- For senior citizens this deduction limit is Rs 80,000.
Section 80E: Deduction on Loan for Higher Studies
Like the home loan
interest, one can also claim income tax deduction for education loan interest.
- You must take education loan from a financial institution.
- You can avail this tax deduction maximum of 7 years.
- You can take the benefit of this deduction only for the higher education.
- You can take this benefit only for the education of self, spouse or children. If you are the legal guardian of a student, you can also take this benefit.
Section 80G: Deduction for Donations
The donations
specified in Section 80G are eligible for deduction. The deduction may of
100% of donation or 50%, It depends upon the type of receiver.
Section 80GG: Deduction on House Rent Paid
This deduction is for
those, who don’t get the house rent allowance from their employer. Such person
can avail this deduction according the specified rules.
Deduction is the
least of
- Rent paid less 10% of total income
- Rs. 5000/ month, i.e. Maximum Deduction available is 60,000 P.A.
- 25% of total income
There are some
conditions for this benefit.
- Assessee or his spouse or minor child should not own residential accommodation at the place of employment.
- He should not get a house rent allowance (HRA).
- He should not have self occupied residential premises in any other place.
Section 80TTA: Saving Account Interest Deduction
Interest earned on
a saving account is not added in taxable income, if it is less than Rs 10,000
in a financial year.
Section 80U: Deduction For Disabled
Under section 80U a
person with disability gets extra deduction from his/her taxable income. Such
person can deduct Rs 50,000 from the taxable income. In case the disability is
severe, the deduction is up to Rs 1,00,000. To avail this deduction one should
obtain a certificate from the government doctor.