Tax Deductions in India
Deductions – We all love that word when used in the context of Income Tax, don’t we? Of course we do. Because that means paying less to the tax man.
There are many deductions available to you as a tax payer and we’d end up writing a thousand page paper if we discussed all of them.
The truth is that you may not be eligible for most of them as a common man. Let us point out to you some of the sections under the Income Tax Act 1961 and the relevant deductions which are commonly used by tax payers.
Section 80C of the Income Tax Act 1961 allows a deduction up to Rs. 1 Lakh in respect to contributions made by you in the relevant year towards the following.
- Provident Fund
- Investment is certain pension plans
- Investment in funds under the Equity Linked Savings Scheme
- Tax saver fixed deposits
- Life insurance premiums
- Certain Post Office investments and much more.
Deductions claimed u/s 80C are widely used by tax payers across India.
You can get a deduction of up to Rs. 1 Lakh from the computation of your total income if you’ve deposited monies in certain pension funds, namely that of LIC.
Do you donate to certain charities? Funds? Charitable institutions? If you do, then you may want to claim deductions u/s 80G of the Income Tax Act 1961. This section will allow you deductions of the amounts contributed, or the amount plus 50% of such amounts in some cases.
The Act has given a comprehensive list of funds/organisations that you can donate to and claim a deduction. So make sure that the institution that you donate to is in the list to avail this deduction.
Do you rent? If you do, you must claim a deduction in respect to the rent you pay for a furnished or a semi-furnished place which is used for the purpose of your residence. If you pay more than 10% of your total income towards rent, you are allowed Rs. 2000 or 25% of your total income for the year, whichever is less.
If you make a contribution to a political party, the amount shall be deductible u/s 80GGC of the Income Tax Act 1961. What you must be aware of is that the party should be registered as a ‘political party’ u/s 29A of the Representation of People Act 1951.
If your income includes profits or gains from newly established industrial or hotel undertakings from certain backward areas, you may be eligible to claim a 25% deduction from the same.
Section 80HHA of the Income Tax Act 1961 allows you a deduction of 25% of the profit or gains that you may have from newly established small-scale industry in certain areas.
If you are engaged in export of goods or merchandise from India, you may be eligible for deduction in respect to profits that have been retained from such a business. An Export House Certificate or Trading House Certificate is mandatory.
Section 80HHE allows deductions in respect to the profits earned from export of computer software.
A person who is certified by a medical authority to be a person with disability can claim a deduction of Rs. 50,000.
If you have incurred expenses relating to the medical treatment of a dependant who is a person with disability, you may be eligible to claim a deduction of Rs. 50,000 from your income for the relevant year.
Section 80E of the Income Tax Act 1961 allows deduction in respect of interest for loan taken out by you for higher education from an approved financial institution. You may claim deduction even if you take out the loan on your name for the purpose of a higher education loan for a relative. ‘Relative’ in this case means your spouse or children, or a student who you are a legal guardian of.
If you have paid amounts for medical insurance for yourself, your family or your parents, you may be eligible to claim a deduction of maximum Rs. 50,000 from the income for the relevant year.
What you need to know
Before you get excited, let us warn you that there are many conditions that need to be satisfied to claim the deductions that we’ve mentioned above.
We suggest that you look up the Income Tax Act 1961 or talk to your accountant before jumping to conclusions. Happy saving!