General Deductions To Reduce Tax Liability At The Time Of  Filing Of Return

Hi readers, as the financial year is coming to an end, the season of tax has arrived. I bring you some of the most common ways to reduce tax liabilityof an individual. Hope this will help you in planning your Investments / Tax savings.

Firstly I am providing you with the general allowances available to a Salaried person.

House Rent Allowance

Provided that expenditure on rent is actually incurred, exemption available shall be the least of the following:

  • HRA received.
  • Rent paid less 10% of salary.
  • 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi) Salary here means Basic + Dearness Allowance, if dearness allowance is provided by the terms of employment.

Transport Allowance

It is granted to an employee to meet his expenditure for the purpose of commuting between the place of residence and duty. An amount of Rs.800 per month is provided as an allowance.

Children Education Allowance

Rs 100 per month per child upto a maximum of 2 children.

Medical Exemption

Maximum Exempted u/s 10 upto Rs.15,000 p.a. based on the bills produced by the employee (i.e. @ Rs.1,250 per month when paid along with the salary)

Leave Travel Allowance:

Income tax exemption from Leave Travel Allowance is available u/s 10(5) from an amount received by an employee from his employer for himself or his family. This exemption is only allowed if the amount received is in relation to leave to any place within India.

The following amount is allowed to be claimed as LTA exemption

  1. Where the journey is performed by Air – Exemption: Economy class fares of the airline
  2. Where the journey is not performed by Air and both the places are connected by Rail – Exemption: Air-conditioned first class rail fare.
  3. Where the journey is neither performed by Rail/Air and nor are the places connected by Rail/Air –
    • Where a recognized mode of transport exists – Exemption: 1st class deluxe class fare of such mode of transport
    • Where a recognized mode of transport does not exist – Exemption: Amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route (assuming such journey is being performed by Rail).

Following are the list of some of the common deductions, which you can claim while calculating taxable income or net total income after adding other sources incomes. The deductions are given along with the income tax sections. So you can get all the complete details by going to that particular section in case of any doubt:

Section 80C

This section has been introduced by the Finance Act 2005 and provides deduction from total income in respect of various investments / expenditures / payments.

The limit for maximum deduction available under Sections 80C, 80CCC and 80CCD (combined together) is Rs.1,00,000/- (Rupees One Lakh only).

  1. Life Insurance Premium for individuals. The policy must be in the assesse’s or spouse’s or any child’s name. The benefit of insurance policies purchased after 1st April, 2013 can only be 10% or less of the sum assured. Benefits for existing purchased policies continue.
  2. Sum paid under contract for deferred annuity for an individual on the life of the assesse, spouse or any child.
  3. Sum deducted from salary payable to Govt. Servant for securing deferred annuity for self-spouse or child Payment limited to 20% of salary.
  4. Contribution made under Employee’s Provident Fund Scheme.
  5. Contribution to PPF for individual can be in the name of the assesse, the spouse or any child. For a HUF, it can be in the name of any member of the family.
  6. Contribution by employee to a Recognised Provident Fund.
  7. Sum deposited in 10/15 year account of Post Office Saving Bank
  8. Subscription to any notified securities/notified deposits scheme. e.g. NSS
  9. Subscription to any notified savings certificate, Unit Linked Savings certificates. e.g. NSC VIII issue.
  10. Contribution to Unit Linked Insurance Plan of LIC Mutual Fund e.g. Dhanrakhsa 1989
  11. Contribution to notified deposit scheme/Pension fund set up by the National Housing Scheme.
  12. Payments of instalments or part payments of loan taken for buying or constructing residential house property. However, if the property is transferred before the expiry of 5 years from the end of the financial year in which possession of such property is obtained by him, the aggregate amount of deduction of income so allowed for various years shall be liable to tax in that year.
  13. Contribution to notified annuity Plan of LIC (e.g. JeevanDhara) or Units of UTI / notified Mutual Funds. Note if in case of such contributions the deduction under Section 80CCC has already been availed, the rebate under Section 88 would not be allowable.
  14. Subscription to units of a Mutual Fund notified u/s 10(23D).
  15. Subscription to deposit scheme of a public sector, company engaged in providing housing finance.
  16. Subscription to equity shares/ debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions.
  17. Tuition fees paid to any school, college, university or other educational institution situated within India for the purpose of full time education of any two children.

Section 80D: Mediclaim Premium to Individual, HUF and Senior Citizens

This section provides for tax deduction from the total taxable income for the payment(by any mode other than cash) of medical insurance premium paid by an individual or a HUF. This tax deduction is available over and above the deduction of Rs.1,00,000 u/s 80C.

The deduction u/s 80D is allowed for making a payment to effect or keep in force an insurance policy which:-

  1. In case of an Individual – Is for the health of the assessee or on the of the wife or husband, dependent parents or dependent children of the assessee, or
  2. In case of HUF- is for any member of the family

The deduction that can be claimed u/s 80D at the time of filing of Income Tax Return is the sum of the following:-

  1. In case the payment of medical insurance premium is paid by the assessee for himself, spouse, dependent children- Rs.15,000. In case, the person insured is a Senior Citizen, the deduction allowed should be Rs.20000.
  2. In case the payment of medical insurance premium is paid by the assessee for parents, whether dependent or not – Rs.15,000. In case the parents of the Assessee are Senior Citizens, the deduction allowed under section 80D should be Rs.20,000.

Section 80E: Deduction in respect of interest on loan taken for higher education

In computing the total income of an individual, any amount paid by him in the previous year out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education or for the purpose of higher education of his relative shall be given as a deduction and reduced from the total income.

The above benefit will be provided for the year in which loan is taken and for the next seven years or until the interest is fully repaid, whichever is earlier.

There would be no treatment of repayment of principal for the purpose of Income Tax and only the amount repaid as interest on education loan is allowed to be claimed as deduction while filing the Income Tax Return.

This deduction is over and above the Rs.1,00,000/- deduction allowed under Section 80C and there is no maximum limit for claiming this deduction.

Section 80U: Deduction in case of person with disability

While computing the total income of an individual, being a resident, who, at any time during the previous year, is certified by the medical authority to be a person with disability, there shall be allowed a deduction of a sum of fifty thousand rupees.

Provided further that where such individual is a person with severe disability, the provisions of this sub-section shall have effect as if for the words “fifty thousand rupees”, the words “seventy-five thousand rupees” had been substituted.

Section 80G: Deduction for donations towards Social Causes

The various donations specified in Sec. 80G are eligible for deduction upto either 100% or 50% with or without restriction as provided in Sec. 80G. 80G deduction not applicable in case donation is done in form of cash for amount over Rs 10,000.

The extent of deduction is either 50% of the contribution for charitable institutions like Jawaharlal Nehru Memorial Fund, National Children’s Fund etc. or 100% of the contribution for charitable institutions like National Defence Fund, Prime Minister’s National Relief Fund and other similar funds, depending on the charitable institution donated to.

Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total income-Donations to the Government or a local authority for the purpose of promoting family planning.

The Adjusted Gross Total in this case, is the gross total income minus long-term capital gain, short term capital gain and all deductions u/s 80CCC to 80U except any deduction under this section.

Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross total income-Donation to the Government or any local authority to be utilized by them for any charitable purposes other than the purpose of promoting family planning.

Section 80TTA: Deduction from gross total income in respect of any Income by way of Interest on Savings account

Deduction from gross total income of an individual or HUF, upto a maximum of Rs.10,000/-, in respect of interest on deposits in savings account (not time deposits) with a bank, co-operative society or post office, is allowable w.e.f. 1st April 2012 (Assessment Year 2013-14).

Wishing you all, A Very Successful Financial Year 2014-15. Happy reading.

Elvis D'Souza

Elvis D'Souza

Elvis is responsible for managing the entire backoffice operation at RKSV. Elvis enjoys movies, partying, and listening to music. He is a self proclaimed biggest Aamir Khan fan on the planet.

  • pravin

    could you suggest for non-salaried professional