The Income Tax Act serves as a reference for estimating the value of income tax deductions that can be realized at the time of filing returns. The income tax slab rates for an individual are applied in case of the total taxable income which is obtained after clipping off the income tax deductions validated for the person.
An individual could make the most of various productive income tax deductions to alleviate the tax obligations in a legal manner that can be described as follows.
- Income tax reduction on investments noted in Section 80C
Section 80C specifies certain investments that can be liable for tax deductions and examples of the various investments specified under Section 80C include references to PPF accounts, Employee Provident Fund and National Savings Certificate. Other notable investments which are illustrated in Section 80C include the premiums paid on Life Insurance Policy, Tax Saving Fixed Deposit and Mutual Funds facilitating equity.
- Income tax rebates on investments in pension funds according to Section 80CCC and 80CCD
Section 80CCC specifies that investment for starting or continuing annuity plan of an insurance firm in order to receive pension can be subject to deduction. Section 80CCD ensures deduction on investment in the National Pension Scheme (NPS) which is a notified pension scheme instituted by the Central Government. However, an individual could claim tax deductions on amounts only up to Rs. 1,50,000 in every financial year according to Section 80CCC and Section 80C.On the other hand, taxpayers could also leverage the benefit of an additional tax deduction of the amount of Rs. 50,000 on investments in NPS account. Hence, the cumulative total amount that can be eligible for deduction according to Section 80C and Section 80CCC is pinpointed at Rs. 2, 00,000.
- Income tax deduction on interest obtained from savings account
Section 80TTA implies that a taxpayer could avail deduction on interest obtained from savings account of a bank. The income obtained from interest is classified as ‘Income from Other Sources’ and is eligible for a maximum tax rebates of Rs. 10,000 per annum.
- Income tax deduction for income obtained from home loan interest
Section 24 allows an individual to claim tax deduction on interest that is levied for home loan taken by the person and it is essential to observe that the deduction is applied for levied interest rather than on the interest paid by the individual.
- Deduction for investment in equity saving scheme
The Rajiv Gandhi Equity Savings Scheme is supported by the Section 80CCG and is implemented in case of investments in listed mutual funds and shares for a particular financial year to a maximum of Rs. 25,000. It is also essential to observe that the income tax rebates can be applied in the case of first time investments alongside considering the lock-in period which is estimated at 3 years from acquisition.
- Tax deduction on payments for health check-up and medical insurance premiums
Income tax deduction according to Section 80D specifies that investments in medical insurance premiums for children, spouse or person as well as payments for health check-up are subject to taxation. Furthermore, it is mandatory to consider the variations in amount of deduction according to the seniority of citizenship of the insured person.
- Deductions for disability
Section 80U and Section 80DD serve as the basis for determining income tax rebates for citizens with disability. Section 80DD specifies deduction for an individual in case they are disabled themselves and Section 80U specifies deduction for an individual who has a disabled person in their family. Tax deductions according to Section 80DD and Section 80U have to be based on the definitions of disability as provided in the Income Tax Act.
- Deduction for treatment expenses for specified diseases
Section 80DDB serves as the reference for determining deduction amount on the expenses for treating specified disease which can be applied in case of person as well as family member. The deduction amount for treatment of specified diseases is either Rs. 40,000 or the actual amount of expenditure, taking the higher amount into consideration.
- Tax deduction for educational loan interest
If an individual has taken a loan for the purpose of higher education for personal use or for spouse and children, then they are liable to receive income tax rebates according to Section 80E. The deduction is applicable to the repaid interest amount on the loan and is devoid of any restrictions on the maximum amount.
- Tax deductions on donations
Donations to approved institutions in a specific financial year are allowed for deductions that are generally encompassed under Section 80G. Specific deductions are implied according to Section 80GGA which is implemented for donations to the objectives of rural development and scientific research while Section 80GGC and Section 80GGB are considered for donations made to political institutions.
- Deductions on rent
Section 80GG specifies income tax deductions on paid house rent without any previous claims of deductions. Any individual who has not utilized the HRA exemption on salary or rent paid according to the Income Tax Act can be subject to tax rebates with the limit specified according to Section 80GG.
Taxpayers in India could leverage the various Income tax rebates, Income tax deductions and income tax exemptions that are validated according to the Income Tax Act and are promoted by the Indian Income Tax Department. These exemptions are intended to entitle taxpayers in India to reduce taxes according to the law.