- Date : 25/07/2020
- Read: 16 mins
Have a look at all deductions available under Section 80 of the Income Tax Act
“’Tis impossible to be sure of anything but Death and Taxes.” – from the play “The Cobbler of Preston”
Once your net taxable income crosses the threshold defined by the government, you will have to pay an income tax on it. But what is net taxable income?
Gross Total Income = Income from Salaries + Income from House Property + Business Income + Capital Gains + Income from other Sources.
Net Taxable Income = Gross Total Income – Deduction specified in Sections 80C to 80U of the Income Tax Act.
Section 80 of the Income Tax Act is designed to encourage citizens to save for their future and invest in insurance and retirement plan. It is a way to help you withstand the vagaries of time. The advantage of Section 80 is not just that you will have to pay a lower income tax, but also that you would make some long-term investments that would prove valuable in your hour of need.
Expenditures and investments eligible for deduction under Section 80C
Under Section 80C, the following investments and expenditures can be deducted from your income when calculating your net taxable income:
Amounts paid by an Individual / HUF towards:
- Life Insurance
- A recognised Provident Fund
- An approved superannuation fund
- Subscription to NSC (National Savings Certificate)
- Tuition fees paid for up to 2 kids
- Payments for purchase/construction of residential house
Further deductions are available for individuals under Section 80CCC and Section 80CCD(1).
Section 80CCC and 80CCD(1): Retirement planning
Under Section 80CCC, instalment paid towards an annuity plan of LIC or any other recognised insurer for individuals is considered tax deductible. This annuity plan must be recognised as a pension plan under Section 10(23AAB). Further, under Section 80CCD(1) contributions made to recognised Pension Schemes are deductible when calculating taxable income. The deduction under Section 80CCD(1) is capped at a maximum of 10% of gross total income for salaried employees. This is raised to 20% for other taxpayers.
It is important to remember that the maximum deduction allowed under Sections 80C, 80CCC, and 80CCD(1) is Rs. 1,50,000.
Further deductions are allowed under Sections 80CCD(1B) and 80CCD(2). These are not included in the cap mentioned earlier.
Section 80CCD(1B) and 80CCD(2): Additional deductions towards pension contributions
Under Section 80CCD(1B), your contributions to National Pension Scheme or Atal Pension Yojna up to a maximum of Rs. 50,000 are eligible for deduction. Further, under Section 80CCD(2) all contributions made by your employer to your pension fund account up to a maximum 10% of your salary is considered deductible when calculating taxable income, there is no monetary factor on this deduction. Salary here refers to Basic+DA, and not the CTC. If you are self-employed, gross salary will be considered instead. Both these deductions are available only to individuals and not an HUF. Let us look at the table to understand.
|Amount in INR lakh||With NPS contribution from the employee alone||With NPS contribution from both the employee and the employer|
|Salary (Basic+DA)||INR 15,00,000||INR 15,00,000|
|Other allowances||INR 3,00,000||INR 1,50,000|
|NPS co-contribution by the employer||0||INR 1,50,000|
|Total salary||INR 18,00,000||INR 18,00,000|
|Employee contribution to NPS||INR 50,000 (here he can claim the entire INR 1.5L under Section 80C)||INR 50,000 (here he can claim the entire INR 1.5L(10% of basic+DA)along with additional INR 50k) as the employer contribution is over and above the limits mentioned under Section 80C|
|Taxable salary||INR 16,00,000 (INR 18L-1.5L-0.5L)||INR 14,50,000 (INR 18L-1.5L-1.5L-0.5L)|
The maximum benefit available is Rs.1.5 lakh (including Sec.80C limit).
An individual’s maximum 20% of annual income or an employee’s (10% of Basic+DA) contribution will be eligible for deduction. Till 2016-17 financial year, maximum deduction was 10% of annual income for individuals.
This section will form the part of Sec.80C limit.
This is the additional tax benefit of up to Rs.50,000 eligible for income tax deduction resulting from the amount deposited by the taxpayer to their NPS account.
Both self-employed and employees are eligible for availing this deduction.
This is over and above Sec.80CCD (1).
The limit is lower of the 3
1) Amount contributed by an employer,
2) 10% of Basic+DA (For Central Government Employees it is now 14% of Basic+DA effective from 1st April 2019)
3) Gross Total Income.
This is additional deduction which will not form the part of Sec.80C limit.(that is can be used over and above the 1.5 lakh +50k limit)
The deduction under this section will not be eligible for self-employed.
Health insurance premiums and health check-ups eligible for deduction under Section 80D
Under Section 80D, you are eligible for the following deductions:
1. A maximum of Rs. 25,000 towards health insurance premiums and preventive health check-ups for self, spouse and dependent children. The cap is increased to Rs. 50,000 if your spouse or you are a senior citizen.
2. A maximum of Rs. 50,000 towards health insurance premiums and preventive health check-ups for your parents, who are dependent on you and at least one of them is over the age of 60 years. If your dependent parents are not senior citizens, deductions are allowed only up to a maximum of Rs. 25,000.
3. A maximum of Rs. 1 lakh is deducted if both taxpayer and parent(s) are senior citizens.
Further, if your parents are over the age of 80 years i.e., they are super senior citizens and do not have a health cover, then deductions of up to Rs. 30,000 are allowed on their medical expenses.
It is important to remember that maximum deduction allowed for health checkups is capped at Rs. 5,000. Other than for health checkups, no payment made in cash is eligible for deduction under Section 80D.
Benefit of Section 80D is available to both individuals and HUFs. The total deduction allowed for individuals is capped at Rs. 1,00,000. The limit is revised to Rs. 50,000 for HUFs.
Section 80DD and 80DDB: Medical expenses
Additional deductions are available under Section 80DD and 80DDB covering specific conditions. Under Section 80DD, an individual or HUF can claim deduction on expenditure incurred for medical treatment and rehabilitation of handicapped relative who is dependent on you. If the disability is 40% or more but less than 80% fixed deduction is Rs. 75,000 whereas if the disability is more than 80%, the limit is increased to Rs. 1,25,000.
Under Section 80DDB, any amount you spend on treatment of specific diseases for self or a dependent relative is eligible for deduction. The maximum amount allowed under Section 80DDB is Rs. 40,000. It is increased to Rs. 1,00,000 in case of the patient being a senior citizen.
Section 80E: Interest paid on education loan
Who can claim the deduction?
The deduction under Section 80E is available only to individuals. To claim the deduction, education loan must have been taken for higher education, i.e. any full-time course pursued after the completion of senior secondary examination (class XII) or equivalent. The course could be pursued either in India or overseas. You can claim this deduction if the loan is taken out for higher studies for yourself, your spouse, or your children.
Who can issue the loan?
To claim deduction under Section 80E, the loan must be taken from a bank, financial institution or registered charitable institutions based in India. If a friend or relative has provided the loan, no deduction can be claimed on payment of interest. Similarly, loans obtained from any foreign entities, including banks, do not qualify for deduction under Section 80E.
There is no upper limit on the deduction that can be claimed under Section 80E. Note that only the interest paid can be claimed as a deduction and not the principal amount or any other fees included. Further, the deduction is available only for a period of 8 years from the date of first interest payment. If the loan is not repaid in this time frame, further interest payments are not treated as deductibles.
Donations under Section 80G and 80GGC
Donations made to certain approved funds, trusts, charitable institutions or for approved causes are deductible from your income under Section 80G. The calculation of applicable deduction (100% or 50%) and the cap thereof depends on the recipient of the donation. Any donation over Rs. 2,000 made in cash is not eligible for deduction under Section 80G.
Any contribution made to political parties in any way other than cash can be claimed as deductible under Section 80GGC. This deduction is available for both individuals and HUFs.
Donations made to following funds and entities are exempted from income tax without an upper limit:
Donations eligible for 100% deduction
Donations eligible for 100% deduction
- The Prime Minister’s National Relief Fund
- The National Defence Fund
- The Prime Minister’s Armenia Earthquake Relief Fund
- Fund set by State Government for medical relief to the poor
- The Africa (Public Contribution - India) Fund
- The National Foundation for Communal Harmony
- An approved university or an educational institution of national eminence
- Earthquake Relief Fund of the Chief Minister, Maharashtra
- The donations made to Zila Saksharta Samitis
- Donations made to the National Blood Transfusion Council or any State Blood Transfusion Council
- The Central Welfare Funds of the Army and the Air Force as well as the Indian Naval Benevolent Fund
- National Illness Assistance Fund
- Chief Minister or Lt. Governor Relief Fund
- National Sports Fund
- National Cultural Fund
- Central Govt. Fund for Technology Development & Application
- Donations made to National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities
- Andhra Pradesh Chief Minister Cyclone Relied Fund
Donations to these are eligible for 50% Deduction
- The Jawaharlal Nehru Memorial Fund
- The Prime Minister’s Drought Relief Fund
- The National Children’s Fund
- The Indira Gandhi Memorial Trust
- The Rajiv Gandhi Foundation
Deduction on donation with an upper limit:
For other entities that are identified as charitable under Section 80G, an upper limit is applied to the amount of deduction available. This upper limit is 10% of the taxpayer’s gross adjusted income.
Gross Adjusted income is equal to Gross Total Income minus all exempted incomes, long-term capital gains and all deductions under Section 80C to 80U, except those under 80G. Again, within this list, some entities are eligible for 100% deduction while others for 50% deduction. Please refer to the Income Tax website for the complete list.
Deduction of house rent paid under Section 80GG
If you do not get HRA as part of your salary structure, you can claim a deduction for the rent paid on the house you live in, under Section 80GG. This deduction is available only for individuals. The deduction allowed under this section is capped at Rs. 5,000 per month or 25% of total income, whichever is less. Only the part of rent higher than 10% of your salary is eligible as deduction.
Section 80TTA and 80TTB: Interest on savings accounts
Under Section 80TTA, interest earned on deposits in savings bank accounts up to Rs. 10,000 can be claimed as deductible. Both individuals and HUFs can take advantage of this deduction. The savings account on which the deduction is claimed could be opened with a bank, co-operative society or a post office. Note that this deduction is available only for savings accounts, interest from other instruments like fixed deposits, recurring deposits, etc. does not get this benefit.
Under Section 80TTB, interest earned on deposits made by senior citizens can be claimed as deductible. The cap for this is Rs.50,000. This includes both savings and fixed deposits.
Section 80U: Deduction for a person with a disability
Under Section 80U, a resident individual who is certified by a medical doctor to be a person with a disability can claim a deduction of Rs.75,000. If the disability is severe, i.e. more than 80%, a deduction of Rs. 1,25,000 is available.
Section 80CCG or Rajiv Gandhi Equity Savings Scheme (RGESS)
Section 80CCG allows individuals with a valid Demat Account who are first-time individual investors are given deduction up to 50% on their investment. This deduction will be allowed for 3 consecutive years and the annual income of the individual should not exceed Rs. 12 lakhs.
Section 80QQB and 80RRB: Royalty
Section 80QQB allow for deduction on royalty income for authors and Section 80RRB for royalty income from patents. Please refer to the details of these sections if they apply to you.
In this article, we have discussed the most widely applicable deductions under Section 80 and its subsections. There may be other deductions available to you, as our purview was limited to individual taxpayers. You should refer to sections applicable to other taxpayers, as required. The deductions available are summarised below:
1. Can I claim the 80C deductions even if I have not submitted proof to my employer?Frequently Asked Questions
Yes, even if you miss submitting proofs of investment to your employer, you can claim deductions at the time of filing your income tax as long as the investments were made in the financial year. The submission of proofs to the employer is used only to ensure that the tax deducted at source is in line with actual income tax due. If any excess tax is deducted, it can be reclaimed while filing your income tax return.
2. I have invested on 30 April 2018. This investment is eligible for deduction under 80C. In which year can I claim this deduction?
You can claim a deduction for investments made in a year in the income tax return filed for the same assessment year. So, for an investment made on 30 April 2018, the deduction can be claimed during FY 2018-19.
3. I have taken a loan from my employer for pursuing higher education. Can I claim the interest paid on this loan as a deduction?
No, you cannot claim the interest paid on education loan availed from your employer as a deduction. Under Section 80E, deduction on interest paid is available only if a bank or other financial institution issue the loan.
4. Is there any restriction or maximum limit up to which I can claim a deduction under Section 80E?
There is no upper limit imposed on the deduction that can be claimed under Section 80E. The only requirement is that the deduction can be claimed only for a repayment period of up to eight years.
5. Can a commercial entity like a company or an organisation take the benefit of Section 80C?
Section 80C applies only to individuals and HUFs.
6. I have a life insurance policy with a private insurance company and have been paying a premium for the same. Can I claim the deduction of 80C for the premium that has been paid?
Deduction for a premium paid towards life insurance is applicable for insurance issued by any IRDAI-approved insurer. The insurer could be a private company or otherwise.
7. I recently bought a house property and paid stamp duty for the same. When can I claim the deduction of the stamp duty?
Under Section 80C, the deduction is available for the same year in which the stamp duty was paid.
8. Can a company which has made donations claim a deduction for the same under Section 80G?
Yes, the provisions of Section 80G apply to all taxpayers.
9. I took a medical policy for my child, my spouse and for myself for which I am paying a premium. I am also paying a premium on medical insurance bought for my parents, who are senior citizens over 60 years of age. Can I claim a deduction for both these premiums which I pay?
Under Section 80D, you can claim utmost a deduction of Rs. 25,000 towards premiums paid for the policy taken out for yourself, spouse and children. You can claim an additional deduction of up to Rs. 50,000 on premiums paid for dependent parents who are over the age of 60 years.
10. Is the interest I earn from my Fixed Deposits exempt under Section 80TTB?
You can claim this exemption if you are a senior citizen.
11. What are income sources that do not attract any tax?
Section 10 and its sub-sections list various income sources that do not attract any tax.
12. Are there special income tax rebates for women?
There are no special provisions for women in the Income Tax Act vis-à-vis men.
13. How is pension income taxable for senior citizens?
Pension is considered as a part of regular income, and is taxed like income from any other source. The only difference is that the tax slabs are defined differently for senior citizens (above 60 years) and super-senior citizens (above 80 years).
14. Can premium paid towards multiple health insurance policies be clubbed under Section 80D?
Yes, as long as the total premium does not cross the limit defined for the Section, and the policy meets the requirements as mentioned above.