Income Tax deductions for salaried employees

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Income Tax deductions for salaried employees

Welcome to Opchi.com. Today’s post is especially for the salaried employees, who are paying income tax for the income from their salaries or other sources. Firstly let us come to know what the tax deduction is. Tax deductions provide us ways for reducing the tax burden. Most of the salaried employees don’t know the important sections of the Income Tax Act of 1961 for tax deductions or tax rebates. We will be discussing the important sections of Chapter VI-A of the income tax Act. Through the provisions of these sections, an Individual/HUF (Hindu Undivided Family) can easily reduce the tax burden. Now, let’s start the discussion.

Income Tax deductions for salaried employees.
Income Tax deductions for salaried employees.

Section 80C

This is the most famous section among the salaried employees for an income tax deduction. The investments & payments listed below are eligible for tax rebate u/s 80C of the Income Tax Act, 1961:

  1. General Provident Fund (GPF) contribution
  2. Life Insurance(LIC etc) premium
  3. Postal Life Insurance (PLI) – Open PLI Account in any Post office.
  4. Public Provident Fund investment (Popularly known as PPF)
  5. Group Insurance Scheme (GIS)
  6. Sukanya Samridhi Scheme (NEW)
  7. Mutual Funds investment for Tax deductions
  8. FDs (Fixed Deposits). The FDs are commonly for 5, 10 or more years.
  9. Purchasing NSC (National Savings Certificates)
  10. On Repayment of principal amount on Home Loan
  11. Making a contribution to the Employee Provident Fund, popularly known as EPF.
  12. For Tuition Fee Paid (The fee paid to an educational institute within the country)

Thus, this section allows tax rebate for making an investment in financial instruments mentioned.

Section 80CCC

Under the provisions of this section, tax deductions allowed to an individual are for the payment or deposits of the amount to start or to continue any annuity plan of an insurance company (e.g. LIC) or any other insurance company i.e. for contributions made to certain pension funds.

Section 80CCD (1)

The provision of this section of the Income-tax Act allows tax deductions to individuals who make deposits to their pension account (For example making deposits under the New Pension Scheme (NPS) using PRAN). The maximum deduction allowed under this section is 10% of the salary (if the taxpayer is an employee) or 20% or the Gross income (if the taxpayer is self-employed) or an amount of Rs. 1,50,000/-, whichever is less.

Section 80CCD (1B)

This is the new section introduced in the Income-tax Act, in which an additional deduction of the Sum up to Rs. 50,000/- is allowed for depositing amount to the NPS account of the individuals. 

Section 80CCD (2)

Under this section, an additional deduction is allowed for an employer’s contribution to an employee’s pension account of up to a maximum of 10% of the salary of the employee. As the amount deposited by the employer to employee’s pension account is not included in the income of the employee, thus tax reduction.

Note :

  • The contribution to NPS (New or National Pension Scheme) is covered under Section 80CCD(1).
  • The extra deduction on NPS is covered under Section 80CCD(1B).
  • The employer’s contribution is covered under Section 80CCD(2).
  • We can claim rebate of Amount 1,50,000/- under Section 80C, Section 80CCC, Section 80CCD(1) & Rs. 50,000 under Section 80CCD(1B).
  • In short, We can claim a total deduction of Rs. 2,00,000/- (Rupee Two Lac Only/-) at the maximum under sections 80C and 80CCD.

Section 80TTA

The income earned by interest from deposits with a saving bank account up to Rs. 10,000/- (Rupee Ten Thousand Only) is tax deductible from the gross income. If the interest earned is more than 10,000/- than it is considered as income from other sources, and hence taxable. We can say, tax rebate or deduction of Rs. 10,000/- is allowed under section 80TTA.  The deduction is allowed to a HUF or an individual. The section 80TTA doesn’t cover the interest income from FD (Fixed deposits), RDs(Recurring deposits) or income from corporate bonds.

Section 80E

Under this section, the interest on education loans taken for higher studies is eligible for the tax deductions. There is no max/min limit. This means that whatever the amount is paid by an individual for his children or spouse or for a student for whom one is legal guardian can be claimed for deduction.

Section 80GG

This section of the Income-tax Act allows deduction on HRA(House Rent) paid by the employee.

Section 80D

Under this section, a tax deduction is allowed for a premium paid for medical insurance.

  • For the insurance of the taxpayer or his spouse or his dependent, we can get a tax rebate/deduction of Rs. 25000 under this section.
  • An additional deduction is available to the extent of Rs. 25,000/- for insurance of the parents of the taxpayer, if they are not more than 60 years old or Rs. 50,000/- if they more than 60 years old.
  • If the taxpayer and his parent is 60 years older or more, A maximum tax rebate of Rs. 1,00,000/- is permissible. For example: suppose an individual is 65 years old and his father is 90 years old, then in this case, the maximum deduction that we can claim u/s 80D is Rs. 1,00,000/-.
  • From the Year 2015-16, we can also get a tax deduction of Rs. 5000/- for preventive health check-ups.

Section 80DD

This section allows a tax deduction for medical treatment of handicapped dependent or payment to specified scheme for maintenance of handicapped dependent, not the taxpayer himself.

  • If the disability is 40% or more and less than 80%, then the tax rebate is Rs. 75,000/-
  • If the disability is more than 80% then the tax rebate is Rs. 1,25,000/-

Section 80U

Under this section tax deduction can be claimed by physically disabled taxpayers, who have been certified by a Medical Authority to be a person with a disability or severe disability.

  • If the taxpayer is suffering from a physical disability(including blindness) or mental retardation, then the rebate is of Rs. 75,000/-
  • if self-suffering from a severe disability then the rebate is 1,25,000/-

Section 80 G – Donations

Tax rebate is also allowed for the contributions made to charitable trusts or certain relief funds. The donations that are mentioned in this section are allowed for tax rebate/deduction. This tax rebate is up to either 100% or 50% with/without restriction.  The donations of Rupee more than Rs. 2000 have to be made in any mode other than cash, only then it will qualify as tax deduction u/s 80G of the Income Tax Act, 1961.

Section 80 GGB

The contributions made by the companies through mode specified in the provisions of this section (NOT BY CASH) to the political parties are allowed under the section 80GGB for tax reduction.

Section 80 GGC

The contributions made by an individual through mode specified in the provisions of this section (NOT BY CASH) to the political parties are allowed under the section 80GGB for tax reduction.

Summary

  • Section 80C – Tax reduction on GPF, GIS, LIC, PLI, Mutual Funds, FD, etc.
  • Section 80CCC – Contributions made to Pensions Funds
  • Section 80CCD (1) – Tax rebate on investment|deposits in the pension account (i.e. NPS)
  • Section 80CCD (1B) – Additional Tax rebate on self-contribution to Pension Account (i.e. NPS)
  • Section 80CCD (2) – Tax rebate on contribution to pension account of an employee by the employer
  • Section 80TTA – Tax rebate on the interest earned from a savings bank account
  • Section 80E – Tax rebate on the Education loan for higher studies
  • Section 80GG – Tax rebate on HRA (House Rent) paid by the salaried employee
  • Section 80D – Tax rebate on the premium paid for medical insurance
  • Section 80DD – Tax rebate on spending on a disabled dependent of the taxpayer
  • Section 80U – Tax rebate on spending for the disabled taxpayer
  • Section 80G – Donations
  • Section 80GGB – Contribution by companies to political parties
  • Section 80GGC – Contribution by an Individual to political parties

Important Links

You can also visit the official website of the income tax department for more. Also the link to the Income Tax Act, 1961 is given below.

Click here – https://www.incometaxindiaefiling.gov.in/home

Click Here to Download PDF – The INCOME TAX ACT, 1961

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