Income Tax Deductions – A Saviour Against High Tax Liability

We all are more or less familiar with the word 'deductions' under the Income Tax Act, 1961. After all, they act as the ultimate saviour against the high tax liability as they help us lower our net total taxable income. But are we sure that we are utilizing this benefit of deductions efficiently and most effectively? Are we aware of all those provisions for which deductions can easily be availed? Well...let's have a quick overview of all the provisions that tend to be overlooked but can be of much use for us –

Deduction in respect of Specified Assets (Section 80C)

We know that if we pay the premium for a life insurance policy taken for self, spouse or children or make an investment in Provident Fund in the name of self, spouse or children, we'll be able to claim their deduction under section 80C, but are we aware of other investment avenues through which we can claim deduction under this section? Listed below are the prominent investment options available under the section as mentioned above –

* Any sum paid in Sukanya Samridhi Account in the name of any girl child of the individual or for whom the individual is the legal guardian

*  Subscription to National Savings Certificates

*  Subscription towards notified units of a mutual fund or UTI

*  Contribution towards notified pension fund set up by mutual fund or UTI

*  Payment of tuition fee within India for full-time education for a maximum of 2 children

*  Repayment of housing loan (principal amount) including stamp duty, registration fee and other expenses

* Investment in five-year Post-office time deposit

Additional Deduction in respect of Contribution made to NPS (Section 80CCD(1B))

Along with the combined deduction of Rs. 1,50,000 under sections 80C, 80CCC and 80CCD (1), there is additional deduction available of an amount of Rs. 50,000 under section 80CCD(1B).

As per section 80CCD(1B), assessees contributing towards the New Pension Scheme (Tier 1 Accounts) of the Central Government can avail a deduction up to Rs. 50,000 under this section. The additional deduction of Rs. 50,000 under section 80CCD(1B) is available to the assessees over and above the benefit of Rs. 1,50,000 available as deduction under section 80CCD (1).

Deduction in respect of Health Insurance Premium (Section 80D)

Under Section 80D, one must remember that along with the deduction available in respect of payments made towards medical insurance premium and CGHS for self, spouse and dependent children, an additional deduction of Rs. 25,000 is available in respect of health insurance premium paid for parents.

* In case either or both of the parents are senior citizens, the limit of Rs. 25,000 gets increased to Rs. 50,000.

* Also, if the individual or his/her spouse or either of his/her parents is a senior citizen and resident in India, and if such person(s) does not have health insurance coverage, then deduction of up to Rs. 50,000 would be allowed in respect of any sum paid on account of medical expenditure in respect of such person(s) if no payment has been made to keep in force health insurance of such person(s).

Deduction for Maintenance including Medical Treatment of a Dependant Disabled (Section 80DD)

Under this section, the deduction is available to a resident individual and HUF for incurring expenses on medical treatment or depositing any amount for maintenance of his/her handicapped dependent relative.

Quantum of deduction: The assessee under this section will get a flat deduction of an amount lower of the following, irrespective of the actual expenditure incurred –
 

1. Normal disability – Rs. 75,000
2. Severe disability – Rs. 1,25,000

Note: Relatives for an individual include his/her spouse, brother, sister, children, mother, father and for a HUF, include any member of the HUF.

Deduction in respect of Maintenance including Medical Treatment of Specified Disease (Section 80DDB)

Deduction under section 80DDB is allowed for medical treatment of a dependant relative of the assessee suffering from a specified disease. It can be claimed by a resident individual and HUF.

Quantum of deduction

1. Rs. 40,000 or the amount actually paid, whichever is less.
2. In the case of a senior citizen and super-senior citizen, Rs. 1,00,000 or the sum actually paid, whichever is less.

Points to be noted -

* The meaning of relative for this section is the same as mentioned above under section 80DD.  

* Specified diseases for the purposes of this section refer to neurological diseases, malignant cancer, AIDS, chronic renal failure and haematological disorders.

Deduction in respect of Interest on Loan taken for Higher Education (Section 80E)

If a loan has been taken by the individual for the purpose of pursuing his/her higher education or for the higher education of spouse and children of the individual or of the student for whom the individual is the legal guardian, then the interest paid on that loan is admissible as a deduction from the gross total income under section 80E. However, such a loan must have been taken from any financial institution or approved charitable institution.

Deduction in respect of donations to charitable institutions, certain funds, etc. (Section 80G)

The contribution that one makes towards some charitable institutions or relief funds is eligible for deduction u/s 80G of the Income Tax Act. There are four categories of deductions under this section –
 

S. No.	Category	Donee
1.	100% deduction of the amount donated, without any qualifying limit	Prime Minister’s National Relief Fund, National Children’s Fund, Swachh Bharat Kosh, National Defence Fund, PM CARES Fund, etc.
2.	50% deduction of the amount donated, without any qualifying limit	Prime Minister’s Drought Relief Fund, Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, Rajiv Gandhi Foundation.
3.	100% deduction of the amount donated, subject to qualifying limit	Government or local authority, institution for the promotion of family planning, etc.
4.	50% deduction of the amount donated, subject to qualifying limit	Government or local authority to be used for a charitable purpose, other than promotion of family planning, notified temple, church, gurudwara, mosque, etc.

Points to be noted –

* Donations in kind shall not qualify for the deduction.

* No deduction would be allowed in respect of donation of any sum exceeding Rs. 2,000 unless such sum is paid by any mode other than cash.

* Deduction under this section can be claimed even if the donation does not have any connection with the business or profession of the individual.

Deduction in respect of Rent Paid (Section 80GG)

Assessee who does not receive HRA and pays rent for an accommodation occupied by him for residential purposes can claim a deduction for the amount paid under this section.

Quantum of deduction: The quantum of deduction will be the least of the following –

1: Actual rent paid less 10% of the total income of the assessee before allowing the deduction, or

2: 25% of such total income (arrived at after making all deductions under Chapter VI A but before taking into consideration any deduction under this section), or

3: Amount calculated at Rs. 5,000 p.m.

* Along with the general deductions covered above, there are some specific deductions available to the individual assessees (both resident and non-resident) in respect of certain interest payments. Such provisions are stated below – 

1: Section 80EE

Section 80EE allows tax benefits on the interest portion of the residential house property loan availed from any financial institution. As per this section, the deduction can be claimed up to Rs 50,000 per financial year until the loan has been fully repaid. This deduction is above the Rs. 2 lakh limit under section 24 of the Income Tax Act.
 
To avail the benefit under this section, the following conditions must be satisfied -

* The loan taken for the house must not exceed Rs. 35 lakhs.

* The loan must be borrowed by a Financial Institution or a Housing Finance Company.

* The loan must be approved between 1st April 2016 to 31st March 2017.

* The assessee should not own any residential house on the date of sanction of the loan.   

2:Section 80EEA

 Section 80EEA allows a deduction on the interest portion of the residential house property loan repaid. Under this section, the benefit can be availed up to Rs. 1,50,000 per financial year until the loan has been fully repaid. This deduction is available over and above Rs. 2 lakhs benefit available under section 24 of the income tax act.
 
In order to claim benefit under this section, the following conditions must be satisfied -

* The loan must be approved by a financial institution between 1st April 2019 to 31st March 2021.

* The property's stamp duty value should not exceed Rs. 45 lakhs.

* The assessee must not be eligible to claim deduction under Section 80EE.

* The individual must not own any residential house property as on the date of sanction of the loan.  

3:Section 80EEB

 Under section 80EEB, a deduction is allowed for interest paid on loan taken to purchase electric vehicles. As per this section, the deduction can be claimed up to Rs. 1,50,000 per financial year until the loan has been fully repaid.
 
To claim deduction under this section –

* The loan must be borrowed from a financial institution or a non-banking financial company for purchasing an electric vehicle.

* The loan must be sanctioned between 1st April 2019 till 31st March 2023.  

The Benefit of Dual deduction in case of –

( a)     Joint Home Loan

In a scenario where a joint home loan has been taken by the individual and his/her spouse, then a dual deduction can be claimed by the individual and the spouse in respect of the principal amount repaid up to Rs. 1,50,000 each under section 80C.

Also, for the interest amount paid on such a loan, the assessee and the spouse can claim the dual benefit under sections 24, 80EE and 80EEA of the Act. However, it must be noted that to claim such double deduction benefit, the property must be co-owned by the individual and the spouse.

(b) Tuition fee paid

As mentioned above, a deduction can be claimed up to Rs. 1,50,000 by the individual under section 80C for the tuition fee paid by him/her for his/her children. However, for the purpose of this provision, the limit is restricted to the tuition fee paid for a maximum of two children.

If the assessee has more than two children, he/she can claim the tax benefit for 2 of them and his/her spouse can take the benefit for the remaining (again for a maximum of 2 children) in case he/she has himself/herself paid the tuition fee for such child or children.

While claiming the deduction for tuition fee paid, it must be remembered that this benefit shall not include any payment towards donation or development fees or payment made for education to any institution situated outside India.

* Income-based deductions

There are a few income-based deductions also available under the Act. Some of them are mentioned below –
 

1. Deduction for Saving Interest (Section 80TTA)

Section 80TTA provides a deduction on the interest income from deposits in savings account with a bank, co-operative society or a post office. The quantum of benefit available under this section is the actual interest received subject to a maximum of Rs. 10,000. This deduction applies to an Individual and HUF.
 

2. Deduction for Interest on Deposits (Section 80TTB)

Under section 80TTB, a taxpayer who is a resident senior citizen in India at any time during a Financial Year can claim an amount of up to Rs. 50,000 as a deduction in respect of interest income received on deposits with a banking company, co-operative society engaged in the business of banking or a post office from his gross total income for that Financial Year.
 
Conclusion:
 
There are many ways through which the benefit of deductions can be availed. All that is required is to keep oneself updated and aware of all the relevant provisions and amendments that take place from time to time. The assessees must carefully plan their investments to claim the applicable deductions efficiently.
 
Authored by CA Rahul Pareva & assisted by Kriti Agrawal
For any queries or suggestions, reach at info@manishanilgupta.com

Disclaimer-The information given above by the author is to provide a general guidance to the readers. This information should not be sought as a substitute for legal opinion.