Income Tax is a direct tax that is levied on any individual’s or entity’s income during a financial year. It is directly paid to the government, like all the other direct taxes.
Tax Benefits Available Under Different Sections of the Income Tax Act 1961:
Provisions in the Income Tax Act 1961 also provide for various deductions under specified sections. Deductions can be claimed against Investments, Allowances, etc., which can reduce the taxable amount of an individual. Here is the list of various options available under different sections mentioned under the Income Tax Act 1961:
1. House Rent Allowance (HRA):
Expenses incurred by employees on staying in rented accommodations can be claimed for deduction under the old tax regime. However, the whole amount of HRA can not be claimed for deduction. The amount for which deduction can be claimed is the least of the following:
- Total HRA paid/received by an employee
- Actual rent paid less 10% of basic salary
- 50% of the salary for metro cities and 40% of the salary for non-metro cities
Any amount exceeding the limit will be taxable at the prescribed rate.
2. Leave Travel Allowance (LTA):
Leave Travel Allowance provided by the employer to travel for professional work is also taxable under the Income Tax Act. Deduction on the amount received as LTA can be claimed by the employees up to the amount of actual expense incurred (bills should be produced), only twice in 4 years. It doesn’t include any expenses on personal travel.
Leave Travel Allowance is restricted to:
- It should be domestic travel only.
- Mode of travel should be rail, air or any other public transport.
3. Standard Deduction:
A flat deduction of ₹50,000 to all individuals earning a salary is known as standard deduction. It is offered to all individuals opting for the old tax regime.
4. Tax Saving Investment and Expenditure Options Under Section 80C:
A maximum deduction of ₹1,50,000 (including 80CCC and 80 CCD) can be claimed under this section. Certain investments, saving schemes, and some expenditures are allowed under this section. Some of them are:
A. Undertake Market Investments:
- Investments done in Equity Linked Savings Scheme (ELSS)
- Investments done in Post Office Savings Bank (deposits) for 10 years or 15 years
- Investments made to ULIPs (Unit Linked Insurance Plans) of any Mutual Fund
B. Investment in Specific Government Schemes:
- Investments made to any recognised securities or deposits scheme (E.g. National Savings Scheme)
- Investments made to any notified savings certificate, Unit Linked Savings Certificate (E.g. NSC VIII)
- Contribution made to the fund set up by the National Housing Scheme
- Contribution made to Employee’s Provident Fund Scheme
- Contribution made to Public Provident Fund
- Contribution made to any recognised provident fund
C. Certain Expenditure:
- Amount paid towards premium of life insurance
- Amount paid towards premium or subscription for deferred annuity for self or immediate family
- Payments against the principal of any housing loan
- Payments towards the tuition fees of any two children’s full-time education in institutes based in India
Some of the investment options available under Section 80C with Rate of Returns and Lock-in Period:
5. Buy a Health Insurance Policy:
Tax benefits are provided by the government to individuals to stimulate them to buy Insurance policies. Section 80D of the Income Tax Act 1961 provides for deductions that can be claimed for an amount varying from ₹25,000 to ₹1,00,000 on medical insurance. It further states:
Besides this, Individuals can opt for Life Insurance Plans. Tax waivers are offered to individuals on life insurance policies purchased by them. Rebate can be claimed on both premium payments and the amount disbursed on maturity.
6. Various Deductions Available Under Different Sections:
A. Section 80CCC: Deductions under this section are mainly:
- Payment of premium to any insurance company towards annuity plans.
- Payment of premium for annuity plan of LIC or any other insurer (maximum cap of ₹1,00,000)
Premium paid in those plans must be kept deposited in order to avail a deduction.
B. Section 80CCD: Any contribution made in a pension scheme notified by the central government by the assessee or the employee comes under this section. The limit under this section is:
- In the case of an employee, 10% of the salary in the previous year.
- 10% of gross total income in any other case.
C. Section 80DDB: In this section, deductions can be claimed on the amount not exceeding ₹40,000 spent on medical expenses that arise for treatment of a disease or ailment mentioned in Rule 11DD of the Act.
D. Section 80E: Under this section, a claim can be made on the amount paid as interest on loans taken for the cause of higher education for self or a relative.
E. Section 80EE: Under this section, first-time homeowners can claim a deduction on their taxable income. Individuals having their first home purchased of value not more than ₹40 Lakh and the loan taken for which is ₹25 Lakh or less are eligible to claim a deduction under this section.
F. Section 80RRB: Under this section, tax can be saved up to an amount of ₹3,00,000 on receiving any income by way of royalties or patents registered under the Patents Act, 1970
G. Section 80TTA: Under this section, any income earned through an interest in a savings bank account, post office, or cooperative society up to ₹10,000 can be claimed for deduction.
H. Section 80U: This section specifically provides a flat deduction on income tax only applied to disabled people. Up to ₹1,00,000 can be claimed for deduction depending on the severity of the disability.
- To Know about the New Tax Regime introduced for FY 2023-24, do read New Income Tax Slab for FY 2023-24
- For more information on Income Tax and Deductions Allowed under various sections, do read What is Income Tax? | Tax Slab | Deductions Allowed
- To know how Income Tax is calculated for Salaried Employees, do read How to calculate Income Tax on salary (with example)?