Under Income tax Act, the total income of any individual Indian resident is subject to tax. To calculate the taxable income,the steps are as follows :
1) Determine the Total Income by adding all the sources of income.
2) Determine the Total Deductions under sections 80C – 80U under Income Tax Act.
3) Subtract the total deductions from the total income to arrive at the total taxable income.
Taxable Income = Total Gross Income – Total deductions
The various deductions under Income Tax Act 1961 are as follows:
|Type of Deduction||Maximum Deduction Allowed|
|Section 24||Interest paid for home loan||1,50,000|
|Section 80C||Contribution to certain investments, payment of insurance premium, repayment of home loan principal amount, provident fund etc.||1,00,000|
|Section 80CCC||Contribution to certain pension plans||1,00,000|
|Section 80D||Premium of Health Insurance paid for self, spouse, children & dependant parents||15000,
20,000 (senior citizen)
|Section 80DD *||Medical treatment of disabled treatment||50,000|
|Section 80E||Interest paid on higher education loan for any family member||No Limit|
|Section 80GG||House Rent in excess of 10% of income, if no HRA is received.||Rs 2000/mth or 25% of gross salary (whichever is less)|
|Section 80G||Donation||100% for special funds **,
50% for the rest of the funds
Indian Income Tax deduction – Under Section 80C
Section 80C of Indian Income Tax Act is the most popular because it is directly related to tax deductions for the monthly savings. In financial years 2009/2010 the maximum income tax deduction allowed under section 80C is 1,00,000. The following is a list of important ways in which a taxpayer can get benefit of section 80C of Indian Income Tax Act.
1) Provident Fund (PF)
2) Life Insurance Premiums
3) ELSS Equity Linked Saving Schemes
4) ULIP (Unit Linked Insurance Plan)
5) Bank Fixed deposits or Term deposits of >5 years
6) Principal part of EMI on Housing Loan
7) Tution Fees
8) Other 80C deductions: Amount saved in National Saving Certificate (NSC), Infrastructure Bonds or Infra Bonds, amount paid as stamp duty and registration charges while buying a new home are eligible for income tax deductions under section 80C of Indian Income Tax Act.
Indian Income Tax deduction – Under Section 80CCC
This section stipulates that an investment in pension funds is eligible for deduction from your income. This investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1 Lakh. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1 Lakh.
Indian Income Tax deduction – Section 80D:
Under this section you can claim the premium paid for your spouse, children and parents. You can claim a deduction of Rs 15000 per annum for the premium paid on ths insurance. With effect from 01-04-2009, you can claim the following items for deductions under Sec 80D-
1. Total amount of premium paid for health insurance of family (meaning spouse + children), or Rs. 15,000 , whichever less.
2. Total amount of premium paid for health insurance of your parents or Rs. 15,000, whichever less.
Thus if you are paying premiums of mediclaim policies for your spouse, children and parents you can get a total tax deduction of upto Rs. 30,000.
Indian Income Tax deduction – Section 80DD
Under this section you can claim deduction for expenses made for treating disabled dependants such as parents, spouse, children, brothers, sisters or any one of them. The total exemption is Rs 50,000 but the exemption can be extended till Rs 75,000 in case the disability is severe.
Indian Income Tax deduction – Section 80GG:
If you are paying House rent and you are not re-imbursed the same from your employer as HRA, then the rent you pay in excess of 10% of the salary is eligible for deduction under this section.
Indian Income Tax deduction – Section 80E:
Under this section the entire amount paid for loans taken for spouse or children is subject to deduction.
Indian Income Tax deduction – Section 80G:
Donations made to funds like Prime Minister’s Relief Fund, National Children Foundation, any University or educational institution of ‘national eminence’, etc are deductible from your taxable income according to section 80G of Indian Income Tax Act. For any other donations you are eligible to take income tax deduction for 50% of the donation amount. Refer to the official site for income tax for the complete list.
Indian Income Tax deduction – Section 24:
Under this section, you are eligible for exemption if you are paying home loan interests. The maximum amount eligible for home loan interest is Rs 1,50,000. Interest paid for loans for home renovation may also eligible for deduction under this section(Refer to the income tax act)