Income Tax Saving Investments and Deductions

There are many deductions available in the Income Tax Act through which you can save your Tax. Here we will look at all those deductions and respective tax-saving Investments details

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1. Housing Loan Interest (Section 24(b)) and Principal Repayment -(Section 80C)

One of the best tax saving options available under Income Tax is Housing Loan Interest and Principal repayment. Those who are looking to buy a new house or construct, repair, or renovate the house should avail of this opportunity to save tax through a housing loan. The interest paid on the housing loan is deductible u/s 24(b) up to a limit of Rs.200000/- per annum and the principal repayment is also deductible u/s 80C up to a maximum limit of Rs.150000/- (cumulative benefit available with other deductions u/s 80C. ​ Thus housing loan is a very good opportunity to reduce your tax liability. ​

2. Investments under section 80C

There is a deduction available under section 80C of the Income Tax Act up to a maximum limit of Rs.150000/- by choosing to invest in various schemes notified under that section.

Some of the schemes available for investment under section 80C are as under :

(a) Life Insurance Premium ​

Any investment made under Life insurance premium qualifies for deduction u/s 80C up to a limit of Rs.150000 during the year. However, there is one necessary condition to be fulfilled i.e. the premium amount should not exceed 10% of the total sum assured. Investment in any life insurance plan of any company i.e. LIC or any other Pvt. insurance companies will qualify for this deduction. Further, the investment can be made in the name of the Self, Wife, or any child. However, the person who is paying the premium will only get the deduction. ​

(b) Post Office Schemes such as PPF, NSC, Senior Citizen Scheme, or Sukanya Samriddhi Scheme ​

There are four types of schemes available for deduction u/s 80C in respect of Post office schemes.

These are :

(a) Public Provident Fund

(b) National Saving Certificate

(c) Senior Citizen Scheme

(d) Sukanya Samriddhi Scheme ​

These four schemes qualify for deduction u/s 80C. There is an lock-in period in each of these schemes which is different for different schemes. The total deduction available under these schemes is Rs.150000 during a particular year. ​

(c) Provident Fund ​

Any deduction made by the employer in respect of payments made to Provident Fund will also qualify for deduction u/s 80C. The whole amount deducted from the employee will qualify for this. The employer share will not qualify for this deduction as the same is already exempt from tax. ​

(d) Equity-linked saving Scheme of Mutual Funds (ELSS) ​ ​

Any investment made in the Equity-linked saving Scheme of Mutual Funds that is specifically made for this deduction will qualify under this category. The schemes are specifically formulated by mutual funds for this deduction and before investing in these schemes it has to be ensured that they qualify for the deduction. These schemes come with a lock-in period of 3 years. ​

(e) Tax Saver FDR at Scheduled Banks

There are specific tax-saver FDRs available in Scheduled Banks wherein deduction u/s 80C is available. These FDRs come with a lock-in period of 5 years and no loan etc. can be taken against these FDRs. ​ ​

3. Deductions under Section 80CCC and 80CCD

1. Pension Plan - 80CCC ​

Any investment made under the Pension Plan will also qualify for deduction u/s 80CCC. The pension plan can be taken from any source. However, the total deduction u/s 80C & 80CCC shall not exceed Rs.150000. ​

2. National Pension Scheme - 80CCD ​

Under this scheme, the deduction is available in the following ways : ​

(a) Employee's contribution to NPS will qualify for deduction up to Rs.150000 [section 80CCD(1)]

(b) Employer's contribution to NPS will qualify for deduction up to 10% of (Basic Salary + DA). This deduction is available over and above the deduction u/s 80C. [section 80CCD(2)]

(c) Additional Employees' contribution to NPS will qualify for deduction up to Rs.50000 [section 80CCD(1B)] This deduction will be available over and above the total deduction of Rs.150000/- available for section 80C, 80CCC & 80CCD. Thus a person can take advantage of this section and can get a deduction of Rs.200000/- by investing in NPS of Rs.50000/- per annum.

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4. Health Insurance Deduction under Section 80D

There is a deduction available for Health Insurance done for oneself or family members. ​ The deduction is as follows: ​

1. For Persons aged less than 60 years:

The total deduction available is Rs.25000/- per annum i.e. if you pay more than 25000/- during the year, the deduction will be restricted to Rs.25000/- only. This includes the health Insurance premium as well as the premium paid for preventive health check-ups. ​

2. For Senior and Super Senior Citizens:

The total deduction available for this category of the taxpayer is restricted to Rs.50000/- per annum. Thus higher deductions are available for senior and super senior citizens for health insurance premiums paid. ​ The deduction under this section is based on the condition that the payment should be made through account payee cheque only. ​ ​

5. Interest Deduction under Section 80TTA and 80TTB

Saving Bank Interest is eligible for deduction up to Rs.10000 u/s 80TTA for any taxpayers. The same has been increased to Rs.50000 in the case of Senior Citizen. ​ In respect of Senior & Super senior citizens, a new section 80TTB has been inserted wherein a deduction of Rs.50000 is available for saving and FDR interests. The total deduction available under sections 80TTA and 80TTB is Rs.50000/- only. ​

6. Deduction for Interest on Higher Education Loan under Section 80E

Any Interest paid for taking an Education loan for Higher Studies is allowed as a deduction. There is no limit of deduction allowed. The deduction is allowed for any interest paid for self or a loan taken for relatives i.e. spouse and children. The loan should be taken from any approved charitable institution or any financial institution. The deduction is allowed for 8 years or till the interest is paid whichever is earlier. The loan should have been taken for higher studies i.e. any course from university, college, etc. after passing senior higher secondary. ​ ​

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7. Deduction under Section 80G i.e. donation to Charitable Institutions

Any donation made to an approved charitable Institution u/s 80G will qualify for the deduction. The limit of deduction is 50% or 100% depending on the approved Institutions i.e. most institutions qualify for a 50% deduction whereas some institutions like Prime Minister Relief Fund etc. qualify for a 100% deduction. ​ There is also a limit to these deductions which is 10% of Gross Total Income (after deducting 80C etc.) ​

8. Donations made to Political parties under Section 80GGC

Any contribution made to a political party or electoral trust is eligible for a 100% deduction. The contribution should be made through Account payee cheque/bank draft and not by cash.

9. Interest paid on the purchase of Electric Vehicle - Section 80EEB

From the Asstt. Yr.2020-21, any interest paid on a loan taken for the purchase of an Electric Vehicle is deductible from Income. This deduction is limited to Rs.150000 per year or actual interest paid whichever is lower.

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