Tax Deductions

Please refer to this article to understand the tax slabs and how income tax is calculated in India. While calculating the tax, various deductions are allowed which allow us to save tax on some of our investments/expenses. Following are the various tax deductions which are provided to individuals in India and can be used for saving tax on their income:

Standard Deduction: A flat amount of Rs 50,000 is deducted from the total income of an individual while calculating the taxable income.
House rent allowance: If you are an individual living in a rented house, you can claim tax deduction on the full/partial rent paid to the landlord. You can claim an amount which is the minimum of following 3:
1. Total HRA received from your employer
2. Rent paid minus 10% of Basic salary
3. 40% of basic salary for (non-metros) / 50% of basic salary for metro cities.
Medical Insurance (Section 80D): You can save taxes on premium paid towards medical insurance for you, your family and dependant parents. The maximum deduction which you can claim is Rs 25,000 for self and family. For parents, an additional amount of Rs 25,000 (if they are less than 60 years of age) / Rs 50,000 (if they are greater than 60 years of age) can be claimed. Many employers provide medical insurance for the parents which is deducted from the salary.
Investments/Insurance (Section 80C): Some types of investments and insurances (up to a total amount of 1.5 lakh) can be used for tax deductions. Details on the types of investments allowed in this section an be found here.

Home loan (Section 80C, Section 24, Section 80EE): When you pay a home loan EMI, a part of it goes towards the interest and the remaining is utilised to reduce the principal outstanding amount. The payment towards principal can be used to reduce the tax liability and is considered in the Section 80C. The component which goes towards interest can be deducted under Section 24 up to a maximum amount of Rs 2 lakh per year. The following conditions must be satisfied in case you wish to claim this deduction:
1. You must be an owner or co-owner of the home for which the loan has been taken.
2. You must be able to provide the proof of interest paid for the financial year.
3. If your family doesn’t own any other property, you can claim deduction on an additional amount of Rs 50,000 under Section . However, the following conditions must be satisfied for claiming this benefit:
  - Value of the house must be Rs 50L or less.
  - The loan amount must be less Rs 35L or less.
  - The loan must have been taken during the financial year 2016-17.
  - At the time of loan sanction, you or your family must not own any other property.
Donations (Section 80G): Contributions made towards some relief funds and charity are allowed for deduction under this section.

Savings Account Interest (Section 80TTA): If you have money kept in your Savings account, you earn income (interest) on the money, and thus, you need need to pay tax on the interest earned from interest. However, an amount of up to Rs 10,000 can be deducted from the total interest earned from all the bank accounts and deducted from the taxable income.

Leave Travel Allowance (LTA): Salaried employees can claim tax deduction on the expenses incurred by them for travel during leaves. There are certain conditions for claiming LTA deduction:
1. LTA can be claimed only for the employee’s travel, including his family. Family includes spouse, children and dependent parents.
2. Proof of travel must be provided. Ticket/boarding pass must be submitted to your employer for claiming LTA.
3. LTA can be claimed only for domestic travel, and only to 1 place. If you are going on a multi city travel, you can claim LTA only for the travel cost from the origin to the farthest place.
4. You must have an applied leave during the journey for which you want to claim LTA.
5. LTA can only be claimed twice for a block of four calendar years (not financial years). The previous 4-year block was 2014-17 and current block is 2018-21.
National Pension System (NPS) (Section 80CCD(1B)): We saw NPS employer contribution while understanding about the payslip. The Employer contribution which is up to 10% of your basic pay is not included in your salary and is thus, non taxable.
Apart from the Employer contribution, you can also claim tax deduction on an amount of up to Rs 50,000 under the section 80CCD (1B). I’ve created a detailed article explaining the benefits of NPS here.

These are the tax deductions which you can claim for reducing your tax liability. Please let me know in the below comments if you have any questions with any of the allowed tax deductions or suggestions for any of the content on my website. You can write to me by visiting Contact Me section of my website.