Are you paying too much tax?
Do you know that you can get a significant reduction in your tax liabilities if you take advantage of all the deductions and exemptions that are available?
The key question is, have you taken advantage of them all and maximized your tax savings? Yes, no, maybe?
If your answer is no or maybe, this guide should help you. It is a comprehensive list of all the tax exemptions and deductions that you can legally make use of in FY 2018-19 (AY 2019-20).
Let's look at each of them one by one...
Deductions that are allowed
Under Section 10
The first set of income tax deductions falls under the Section 10 of the Income tax act. These deductions are against specific allowances that may be part of your overall salary. Essentially, these exemptions will depend upon your salary structure.
Your total taxable salary is computed after reducing all these exempt allowances and the balance salary will be taxable.
Let's look at some of them.
1. House Rent Allowance (HRA)
HRA is amongst the most popular and probably the most utilized tax deductions for salaried folks. This deduction is geared to allow employees to cover for genuine expenses on rent.
However, how much HRA exemption you will get will depend upon your salary structure. Your basic pay, your exact HRA amount and your current city of residence will determine how many deductions you are eligible for.
HRA is calculated basis minimum of these three:
1. Actual HRA received
2. Rent paid less 10% of Salary
3. 40% of Salary for Non-metro and 50% for metro locations (Mumbai, Chennai, Delhi
Salary is defined as Basic plus Dearness Allowance if any.Download
Automated House Rent Exemption Calculator U/s 10(13A)
2. Children Education Allowance
Children Education Allowance is also exempted from income tax. Just like previous exemptions, this allowance should already be part of your salary structure.
This allowance is limited to INR 100/month/child for a maximum of 2 children.
3. Hostel Subsidy
Hostel Subsidy is geared towards providing for your child's education. If you have this as part of your salary structure, you can claim a deduction of INR 300/month/child up to a maximum of 2 children.
4. Uniform Allowance
Any allowance to cover the expenditure on purchase and maintenance of uniform that's needed for the performance of official duties or employment of profit is allowed as a deduction.
5. Deductions against Interest paid on Home Loan U/S 24(B)
Home loan is amongst the most popular ways to save taxes.
If you have a current home loan that's running, you can save tax on an amount equivalent to interest you are paying on the same.
This amount can be adjusted against income from any head up to 2 lakhs per year.
Your house should be self-occupied and not on rent for you to be eligible for this exemption. If your home is under construction right now, you may aggregate and get this benefit in future years.
You should note that this deduction under Section 24 is for Interest only and not for the principal payments. The principal payment is allowed as a deduction under Section 80C.
6. Deductions on Home Loan for the first time Home Owners
This benefit is only available to the first time homeowners and they are eligible for a deduction of INR 50k per year.
This benefit is available under the Section 80EE and is over and above the Section 24 benefit of 2 lakhs per year.
It's only applicable to Individuals and HUFs or AOPs cannot claim this benefit.
You should have taken the loan from a financial institution for purchasing your first property. This loan should have been sanctioned between April 1st, 2016 and March 31st, 2017.
The value of the house should be less than 50 lakhs and the loan should be 35 lakhs or less. Also, as on the date of sanction, you shouldn't own any other property.
This exemption is not per property but rather per person. So if you have taken a joint loan for a joint property, all the co-borrowers will be eligible for this deduction.
Download Automated 50 Employees Master of Form 16 Part B for Financial Year 2018-19 & Ass Year 2019-20 [This Excel Utility can prepare at a time 50 employees Form 16 Part B for F.Y.2018-19 ]
7. Under Section 80C, 80CCC, 80CCD(1)
The Government of India wants to encourage investing behavior with its citizens. With that in mind, it provides tax deductions for some types of investments under section 80C.
Investments in following vehicles are covered under Section 80C:
· Employee Provident Fund
· Pension/Annuity Schemes
· Life Insurance Premium
· Tax Saving Mutual Fund (ELSS)
· Home Loan Principal Payment
· Sukanya Samriddhi Account
· Tuition Fees for Children
· PPF Account
· National Savings Certificates
· Tax Saving Fixed Deposits
· Post Office Time deposits
· Senior Citizen Savings Schemes
Section 80CCC allows for deductions against premiums paid for Annuity plans of insurance companies. This exemption is limited to 10% of your salary if you are salaried and 10% of gross income if you are self-employed.
Similarly, your contributions to pension plans are eligible for tax deductions under Section 80CCD(1). This is limited to 10% of your salary (for employees) or 20% of your gross income (for self-employed).
Please note that the combined overall deduction limit for these sections is 1.5 lakhs/year. Even if you have investments beyond this amount, this is the maximum benefit you will get.
8. Self-contribution to NPS or Atal Pension Yojana (Section 80CCD (1B))
A new section was introduced by the Government to promote the adoption of NPS.
Any investments by you in your NPS account will make you eligible for an additional deduction of up to INR 50,000 per year under section 80CCD(1B). Contributions to Atal Pension Yojana are also eligible.
This deduction is over and above the standard 1.5 lakhs/year limit.
9. Employer's Contribution to NPS (Section 80CCD(2))
Your employer's contribution to your Pension account is an additional tax saving opportunity i.e. it's exempted from the overall limit of 1.5 lakh under Section 80C. This deduction, however, is limited to 10% of your overall salary.
This is something you should look at if you are investing in NPS plans as it allows you to save additional taxes that you may not have been able to save otherwise.
10. Medical Insurance and Health Check-up Deduction (Section 80D)
Any amount that you spend on a Medical insurance is eligible for deductions. The deduction amount is limited to INR 65000 per year and medical insurance of self, family (spouse and dependent children) and parents are allowed under this section.
Any amount you spend on a preventive health check-up will be eligible for a deduction as well.
11. Education Loan for Higher Studies (Section 80E)
If you have taken a loan to fund your higher education, you can claim a deduction against interest paid on that loan. There is no overall limit as such on this deduction, but for you to be eligible, you should fulfill the following:
· The loan must be from a financial institution (and not from friends/family etc)
· The maximum number of years you can claim this deduction is 7 years
This benefit is allowed for your, your spouse's or your children's higher education.
Again, please note that the benefit is only on interest repayment and not on the principle that's paid back.
There is no maximum limit as such on this deduction and you can avail of this facility both for education in India
12. Deduction on House Rent Paid (Section 80GG)
This deduction is allowed for those who don't get any HRA from their employer. If that's the case, you don't get any HRA benefit as such and the Government has allowed a different deduction against your rent expenditure.
This deduction is the least of
1. Rent Paid minus 10% of total income
2. INR 5,000/month
3. 25% of total income
You, your spouse or your minor child should not own any residential accommodation at your place of employment for you to be eligible for this benefit. Additionally, you should not have any self-occupied residence in any other place.
13. Section 80DD, 80DDB, 80U
You can get a deduction of up to INR 50000 in case you have a dependent with a mental or physical disability under Section 80DD. Also, for treatment of serious illness, you can get an exemption of INR 80k for senior citizens and INR 40k for others. You will have to produce the bills and only the actual expenditure (i.e bills minus insurance reimbursements) is eligible.
14. Deduction for donations towards Social Causes (Section 80G)
The various donations in Section 80G are eligible for either a 100% or a 50% deduction with or without a qualifying limit. Please note that this deduction is not applicable if more than INR 2000 is paid in cash.
There are four types of donations under this section:
· Donations with 100% deduction without any qualifying limits
· Donations with 100% deduction with any qualifying limits
· Donations with 50% deduction without any qualifying limits
· Donations with 50% deduction with any qualifying limits
Donations approved for 100% deduction without any limit as such mostly involve funds set up by the Central or the State Governments for the benefit of society. National Defence Fund and Prime Minister's relief Fund are some prominent names here.
Further, there are some donations that are allowed for 100% deduction but have an overall qualifying limit of 10% of adjusted gross total income. The adjusted gross total income is calculated by reducing the deductions under other sections from overall total income.
This type of donations can be made to any approved local authority, institution or association with a purpose to promote family planning. Companies can get this benefit for donations to IOA or sports associations.
Next, there are four donation types, that are eligible for a 50% deduction without any qualifying limits. These are donations to:
· Jawaharlal Nehru Memorial Fund
· Prime Minister's Drought Relief Fund
· Indira Gandhi Memorial Trust
· The Rajiv Gandhi Foundation
Finally, there are donations that are eligible for a 50% deduction, but subject to a qualifying limit of 10% of adjusted gross total income.
For a complete overall list of exempted institutions, refer this link.
15. Saving Account Interest Deduction (Section 80TTA)
The interest that you earn on your savings bank accounts is interest-free till INR 10k. This interest is added under the head "Income from other Sources" in your income tax filing. An exemption against same is allowed under Section 80TTA.
16. Pension Income
You may get a pension from your employer or through an annuity scheme that you may have purchased. The pension can either be computed or uncommitted. The commuted pension is essentially paid upfront while uncommitted pension is paid over regular intervals.
Commuted Pension for the Government Employees is fully exempt. For all others, it's exempt to the least of the following:
1. If you have received Gratuity, one third or the pension received
2. If you haven't received Gratuity, one half of the pension received
However, the uncommitted pension is fully taxable in hands of an individual.
