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April 12, 2021
Quick Guide to Common Tax Deductions and Exemptions

Common Tax Deductions and Exemptions

Getting a rebate in tax payment is the happiest feeling for every salaried employee and businessperson. There are many ways to reduce your total tax payable amount by different kinds of investments that are directly or indirectly operated/beneficial to the government. However, every investment that is subjected to tax deductions and exemptions has limitations for every individual.

Tax Deductions and Exemptions

tax deductions and exemptions

Today, in this article, we will discover the common tax deductions and exemptions available in India for every individual. We will see which different types of money investment options are available to get the rebate in the income tax payment, along with their limitations and rules. Now, let’s see the different options that can reduce your income tax.

Tax Benefits on Home Loans and House Rent

An individual can claim tax relaxation of up to 50,000 INR when 2 lakh or more amount is to be paid as house loan interest. This benefit comes from section 80EE of the Income Tax Act, and is only applicable to the first-time house buyer if the loan amount is less than 35 lakhs. To avail of this benefit, one must take a loan from a bank or any housing finance company. For more details on Section 80EE, click here.

If an individual does not have their own house or property to live in and is paying house rent, then he/she can claim 60,000 INR tax deductions under Section 80GG of the Income Tax Act. This facility is not available if the individual has their own house/property at another place but not living there.

Education Loan

According to the Indian Income Tax Act and Section 80E of the act, an individual can claim a tax deduction on the interest paid for the education loan. However, tax benefits are only applicable if the loan is taken for higher education for self, spouse, own children, or someone who is a legal guardian.

Tax Benefits on Health and Life Insurance Policy/premium

Under Section 80C of the Income Tax Act, one can claim a tax deduction for the payment done as a life insurance premium for self, spouse, and children. The total tax benefits are subjected to the payable amount of the premium and according to the policy’s terms & conditions.

Health insurances are also subjected to tax deduction under Section 80D. Under this scheme of tax relaxation, one can get up to 25,000 INR income tax relief, and this raises to 30,000 INR for the senior citizen.

Fixed Deposits

Indian Income Tax Act offers a tax exemption for the fixed deposits made in the bank. According to Section 80C, the amount invested as fixed deposits in banks for the tenure of 5 years is considered to be free from income tax calculation.

PPF, NSC, SCSS, POTD

The Section 80C of Indian Income Tax Act offers many tax-saving investments which are most suitable for salaried employees and persons having income in the limited or fixed source. Here we will see the top 4 popular investments which come under 80C and are considered best for tax savings.

Public Provident Fund (PPF): Any individual can open a PPF account and regularly invest in it. The amount invested in PPF is tax-free; means no tax will be imposed on the amount.

National Saving Certificate (NSC): This is the most secured investment in India that comes under Section 80C. All the amount invested in this scheme comes under tax deduction, but the interest earned by this investment scheme is not tax-free.

Senior Citizen Savings Scheme (SCSS):  As the name suggests this scheme is for a senior citizen who wants to invest and wants a tax deduction. Many banks in India provide SCSS and offer excellent service for the same scheme. However, the interest earned from this scheme is taxable.

Post Office Time Deposit (POTD):  It is a 5-year investment scheme from the Indian Postal Department. Investors get the benefit of tax deduction under section 80C by investing in this scheme. However, the investor must pay tax on the money earned as interest by the scheme.

The above four schemes are the popular tax-saving investment in India. One important point to be noted is that any individual can get a maximum of 1.5 lakh INR tax exemption under section 80C. That means no matter how much you invest in these schemes or invest in multiple schemes, you can save only 1.5 lakh INR from your income tax payment per year.

Employee Provident Fund (EPF)

Every salaried employee can claim a tax deduction for the amount deposited in their EPF account. These tax benefits fall under section 80C. Moreover, the government adds 12% of the total amount contributed to EPF account from the employee (new employee having less than 3 years of employment).

Leave Travel Assistance (LTA)

If any salaried employee takes holiday and travels to their hometown or any other place in the country, then he/she can claim a  income tax deductions against the expenses made in the travelling. This claim can be made once in every 2-year block, and the previous block unclaimed LTA cannot be claimed in the current block. And this claim is valid or legal only when the claim is directly made by the employee, not from a company or organization.  

Tax Deductions Schemes (80TTA, 80CCF, 80CCG)

The interest earned through a bank savings account can be claimed for tax deduction under section 80TTA. An individual can get up to 10,000 INR tax relaxation from this section.

Under section 80CCF, an investor can get up to 20,000 INR deduction in their total Income tax amount. To claim this tax benefit, one must invest in long term infrastructure bonds issued (or notified) by the government. 

From the Income Tax Act section 80CCG, one can claim a tax deduction against the amount invested in shares and mutual funds. This scheme is also known as Rajiv Gandhi Equity Saving Scheme, and the individual can get a maximum tax relaxation of 25,000 INR. 

Donations

An individual or company can get tax deductions through donations made for any charitable trust for social welfare works. The tax exemptions can be either 100% or 50% (depends upon the kind of charitable organization) of the total donation amount. 

Investment in Retirement Plans

Every taxpayer can claim a deduction in tax payment against the investment made for retirement plans offered by LIC or any other government-approved insurance and investment agencies. The National Pension Scheme is also a fine example of the investment that gives tax relaxation for any individual.

Apart from the above-mentioned various ways (investment) for a tax deduction and exemption, there are other options available for tax relaxation. However, those ways could not be applicable for every person because they depend upon income source, mode of occupation, and other factors. If you want to know the complete list of all tax deductions and exemptions ways available in India, then Click Here.

It is the official web address of the Indian Income Tax Department where all the tax deduction nature is mentioned. Go through it if you need more information about tax relaxation.

Bottom Line

We have seen all the common tax deductions and exemptions available in India, and with the help of these methods (set up by the government), one can reduce their total payable income tax amount. It is advisable to remain updated about tax reforms for the right information because, with the Finance Budget, these tax deductions and exemptions reforms change every year.

So, if you haven’t made any investment or you are not eligible for tax relaxations, then this is the right time to invest or take a way to save your money on income tax. Find the most suitable way from above and save your tax money.

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3 Comments

  1. Jeffrey Slaton Reply

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  2. Jeffrey R. Slaton Reply

    It’s really a great and useful piece of information. I’m satisfied that you just shared this useful info with us. Please keep writing. Thank you for sharing.

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