What are the important IT deductions you should know about?

Your income tax liability depends on the amount of total income that you earn during each financial year. The rate of tax rises as your income increases from one slab to the next. So, if you have just received a massive hike at work or scaled up your business this year, you could be looking at a higher tax rate.

Fortunately, the Income Tax Act, 1961 contains many provisions that help you reduce the burden of taxation. Aside from several exemptions, there are also many deductions that you can take advantage of while filing for income tax.

Here are some important income tax deductions that you need to know about before filing your income tax returns.

Deductions for your insurance premium

The premiums that you pay for your life insurance plan and your health insurance plan are both eligible for deductions. As per section 80C of the Income Tax Act, life insurance premiums up to Rs. 1.5 lakh are deductible from your total income each year.

As for health insurance premiums, check out the eligible limits for deduction as per section 80D of the Income Tax Act.

Policy taken for Age of the policyholder Maximum amount of deduction allowed
Self, spouse or child Below 60 Rs. 25,000
Self, spouse or child Above 60 Rs. 50,000
Parent Below 60 Rs. 25,000
Parent Above 60 Rs. 50,000

Deductions for investment in specified schemes

Investments in certain schemes qualify for deduction under section 80C of the Income Tax Act. Here is a list of some such investment schemes.

  • Public Provident Fund
  • Tax-saving fixed deposit
  • Equity Linked Savings Scheme
  • National Pension System
  • National Savings Certificate
  • Sukanya Samriddhi Yojana
  • Senior Citizen Savings Scheme

The total amount of deduction under section 80C is Rs. 1.5 lakhs per year, including your investments in the above schemes and the life insurance premiums you pay.

Deductions for home loan repayment

If you plan to take a home loan in the near future, or if you are currently repaying one, you’ll be glad to know that both the interest and the principal component of your EMIs are eligible for deductions under the Income Tax Act, 1961, as follows.

  • Section 24 of the Income Tax Act:

The interest portion of the EMIs is deductible from your total income up to Rs. 2 lakhs each year for self-occupied properties and without any limit for other properties.

  • Section 80C of the Income Tax Act:

The principal component of the EMIs is deductible up to Rs. 1.5 lakh in total under section 80C.

  • Section 80EE of the Income Tax Act:

The interest component of the EMIs also qualifies for an additional deduction up to Rs. 50,000 in case the following conditions are satisfied.

  1. The amount of loan taken should be Rs. 35 lakhs or lower.
  2. The value of the property should be Rs. 50 lakhs or lower.
  3. The individual should be a first-time house owner.

Deduction for interest on your savings account

You earn interest on your savings bank account, don’t you? As per section 80TTA of the Income Tax Act, you can claim a maximum deduction of Rs. 10,000 for such interest.

Deductions for specified donations

The Income Tax Act, 1961, also specifies certain donations that are eligible for deductions from your total taxable income. Some of these donations qualify for 100% deduction, such as donations made to:

  • National Defence Fund
  • Prime Minister’s National Relief Fund
  • National Illness Assistance Fund
  • National Sports Fund
  • National Children’s Fund
  • Swachh Bharat Kosh
  • Clean Ganga Fund

Other donations qualify for 50% deduction, like the donations made to:

  • Jawaharlal Nehru Memorial Fund
  • The Rajiv Gandhi Foundation
  • Indira Gandhi Memorial Trust
  • Prime Minister’s Drought Relief Fund

Conclusion

If you are eligible for any of these deductions, ensure that you mention them at the time of income tax e-filing. You can then reduce your taxable income and thereby bring down your tax liability too. Alternatively, if you have already paid more tax than what is due, on account of TDS, TCS or advance tax, you will be eligible for an income tax refund. Also, it is important to file one’s taxes on time as money laundering is one such issue for the nation and the only way to move past it is when everyone is aware of the tax laws and procedures.

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