There are many options to save Income Tax in India
1. Provident Fund -12% of Basic Salary
12% contribution is being deducted from the basic salary of employees. The amount of employees contribution to Provident Fund is eligible to be deducted under section 80-C.
2. House Rent Allowance (HRA) - 40% to 50% of basic salary or actual rent paid, lowest
Salaried employees can claim HRA exemption against the house rent they paid. Calculation of exempted amount of HRA is as under. The deduction available against HRA is the minimum against the following:
- Actual HRA Received
-50% of Basic Salary + DA for who live in Metros cities or 40% for those living in non metro cities
-Actual rent paid over 10% of basic salary
For amount exceeding Rs. 8,333/- against rent PAN number of landlord needs to be collected and submitted with the employer. If the employer does not have a PAN, a declaration signed by the employer should be submitted.
Tenants paying rent to NRI landlords should deduct 30% of TDS before making payment towards rent.
When employer is not giving House Rent Allowance - Deduction 80GG Rs. 5,000 Per Month
If your employer is not giving HRA, you can claim deduction under 80GG of Income Tax Act. Currently it is Rs. 5,000/- per month.
3. Medical Reimbursement - Rs. 15,000/- (Not available from Financial Year 2018-19 onwards)
If your employer is providing medical reimbursement, you can claim deduction of Rs. 15,000/- subject to production of actual medical bill to your employer
4. Conveyance Allowance - Rs. 19,200/- (Not available from Financial Year 2018-19 onwards)
Employees can claim conveyance allowance for traveling from residence to work. From Financial Year 2015-16 on wards exemption against conveyance allowance is Rs. 1600 per month.
5. Leave Travel Allowance
Employees can avail leave travel allowance exemption for shorter trip in India. Allowance can be taken against amount spent for traveling with spouse, children and parents. Other relatives are not allowed. This exemption is against actual expenses, so bills should be submitted with the employer.
6. Professional Tax Paid - Rs. 2,500/-
Some states are levying professional tax upto maximum of Rs. 2,500/-. This amount can claimed as deduction while filing income tax return.
7. Leave Encashment - Rs. 3,00,000/-
Leave encashment is fully exempted for central government employees. For non government employees this amount is exempted least of the following limit.
a. 10 months average salary preceding retirement or resignation (salary includes DA also)
b. Actual amount received as Leave encashment
c. Amount equal to salary for the leave earned
d. Rs. 3,00,000/-
Amount of taxable leave encashment shall be total leave encashment amount - exempted amount.
8. Tax relief against salary arrear received - Section 89(1)
You can claim Tax relief on salary arrear received. The calculation is as under:
a. Calculate tax payable on total salary for the year in which the amount received
b. Calculate tax payable on total income excluding arrear for the year it received
c. Calculate the difference between a and b
d. Calculate tax payable on total income of the year to which the arrear received, excluding arrear
e. Calculate tax payable on total income of the year to which the arrear received, including arrear
f. Calculate the difference between d and e
g. The excess amount at c and f is the tax relief available
9. Amount received at the time of voluntary retirement - Rs. 5,00,000/-
As per Section 10(10c) of Income Tax Act any compensation received on voluntary retirement or separation is exempt subject to satisfying the following conditions.
-Compensation received is towards voluntary retirement or separation
-Maximum compensation received does not exceed Rs. 5,00,000/-
-The recipient is an employee of an authority established under the Central or State Act, local authority, university, IIT, state government or central government, notified institute of management, or notified institute of importance throughout India or any state, PSU, company or cooperative society.
-The receipts should be in compliance with rule 2BA
If relief under section 89 has been taken, no relief can be claimed by the employee for the same Assessment Year or any other year.
10. Commuted and un commuted amount of pension exemption
For a government employee, commuted pension is exempt. In other cases it may be exempt in certain cases.
11. Gratuity Exemption - Rs. 10,00,000 or full for certain employees
Gratuity received on Retirement or death by central government, state government or local government employee is fully exempted from tax. Tax calculation in other cases will depend on whether the organisation is covered under Payment of Gratuity Act or not.
If the employer is covered by Payment of Gratuity Act
Lowest of the following amount is tax exempted:
- Rs. 10 Lakh
- Actual Gratuity Received
How to calculate Gratuity
Gratuity is calculated as 15 days salary for every completed year or part thereof in excess of 6 months. The formulae is:
Last drawn salary (Basic+DA) x No of years in employment x 15/26
If the employer is not covered under Payment of Gratuity Act
Half months salary for each completed years of service. Any fraction of year shall be ignored.
Tax exemption will be the lowest amount of:
- Rs. 10 Lakh
- Actual Gratuity Received
12. Reduction of Interest paid on home loan under section 24. Rs. 2,00,000/-
As per section 24 of Income tax Act the benefit of interest paid on home loan can be availed by the Tax payee, where the loan is taken for the purpose of purchase, repair, renewal or reconstruction of a residential house property. The maximum deduction allowed under section 24 of a self-occupied property is Rs. 2,00,000/-. Tax deduction on interest on home loan is under section 24 is deductible on accrual basis. Hence the deduction under section 24 should be claimed on yearly basis.
If the property is not acquired / constructed/ completed within 5 years from the end of the finacial year in which the loan was taken, the interest benefit in the case would be reduced to Rs. 30,000/- only.
From Financial Year 2017-18 onwards the maximum amount of loss under the head house property that can be set off other heads of income is limited to Rs. 2,00,000/- only. Balance amount can be carry forwarded to next year.
Treatment of pre construction interest paid before occupation
Pre construction interest paid should be aggregated and the aggregated amount shall be allowed to claim in 5 installments for 5 successive financial years starting from the year in which construction has been completed.
Other Income Tax Deductions
13. Deduction under section 80C Rs. 1,50,000/-
Under section 80 C, amount invested in PF, LiC Premium, PPF, principal amount of home loan etc can be claimed subject to maximum of Rs. 1,50,000/-
14. Deduction Under Section 80CCC
Under Section 80CCC any amount deposited or paid for an annuity scheme under LIC of other insurer can be claimed. The plant must be for receiving pension from a fund referred to in section 10(23AAB).
If the annuity is surrendered before maturity, the surrender value is taxable in the year or receipt.
15. Deduction under Section 80CCD - Rs. 1,50,000/-
Employees who are making deposit to their pension account can claim deduction under section 80CCD. The employees can contribute 10% of salary (for salaried), 10% of gross income (self employed) or Rs. 1,50,000/- whichever is lower.
The combined limit of deduction under section 80C, 80CCC, 80CCD is Rs. 1,50,000/-
16. Deduction for self contribution to NPS under section 80CCD(1B) - Rs. 50,000/-
Employees contribution to NPS - Section 80CCD(1B) - Additional deduction of Rs. 50,000/- is available for the amount deposited by a tax payer to NPS account and Contribution to Atal Pension Yogna.
Employer contribution to NPS - Section 80CCD(2)
Additional deduction is available for employers contribution to employees pension fund upto 10% of salary of the employee. There is no maximum limit in this section.
17. Deduction of interest received on savings Bank Account under section 80TTA - Rs. 10,000
A deduction of Rs. 10,000/- can be claimed under section 80TTA of the Income Tax act against amount of interest received on saving bank account. The amount should be included in the other income while calculating the taxable income and can be claimed upto Rs. 10,000/- or actual amount of interest received on savings bank account, which ever is less.
18. Deduction on House Rent paid where HRA is not received, Section 80GG - Rs. 60,000/-
This deduction is available when HRA is not received and the assessee paid rent. Spouse or minor child of the person should not hold residential accommodation at the place of employment.
The tax payer should not have any self occupied residential property in any other place
The tax payer must living on rent and paying rent
Minimum of the following amount is available as deduction
a. Rent paid minus 10% of total income
b. Rs. 5000 per month
c. 25% of total Income
19. Deduction of Interest amount on Education loan, under section 80E - No Limit
Under Section 80E deduction is allowed for interest on loan taken for pursuing higher education. The loan may be taken for tax payer, spouse or children, or students for whom the tax payer is a legal guardian. The deduction is available for a period of 8 years or when the interest is paid whichever is earlier.
20. Deduction on Medical Insurance Premium under Section 80D - upto Rs. 60,000/-
Deduction is available as under:
- Rs. 25,000/- for insurance of self, spouse and children
- Rs. 30,000/- if the individual or spouse is above 60 years
- Rs. 25,000/- additional deduction for insurance of Parents
- Rs. 30,000/- additional deduction, if parents are above 60 years
From AY 2016-17 - additional deduction of Rs. 5,000/- is available for preventive health checkup
21. Deduction on Medical Expenditure for handicapped relative Section 80DD - Rs. 1,25,000/-
Deduction under Section 80DD is available on the following conditions:
1. Expenditure incurred on medical treatment including nursing, training and rehabilitation of handicapped dependant relative.
2. Amount paid or deposited to specified scheme of maintenance of dependant, handicapped relative.
- Disability from 40% to 80% : Fixed deduction of Rs. 75,000/-
- Severe disability i.e. 80% or above : Rs. 1,25,000/-.
To avail this deduction a certificate is required from specified medical authority.
22. Deduction on Medical expenditure on self or dependant relative, 80DDB - Rs. 80,000/-
Under Section 80DDB deduction is available to the resident tax payer for medical treatment expenses on himself or dependent relative. The diseases have been specified in Rule 11DD. A certificate in form 10 I is to be furnished by the taxpayer from any Registered Doctor. The deduction amount are:
- Rs. 40,000/- or the amount actually paid whichever is less for normal assessees
- Rs. 60,000/- or the amount actually paid whichever is less for Senior citizens
- Rs. 80,000/- or the amount actually paid whichever is less for Super Senior Citizens
23. Deduction for person suffering from physical disability, under section 80U - Rs. 125000/-
Deduction under section 80U can be claimed by person suffering from physical disability. The deductions are as follows:
- Rs. 75,000/- for individual who suffers from physical disability
- Rs. 1,25,000/- for person suffering severe disability
Certificate should be obtained from a Govt. Doctor. The relevant rule is Rule 11D. This is a fixed deduction and not based on bills or expenses.
24. Deduction of Donation made for Social issues, under Section 80G
Donations made under section 80G are eligible for either 100% deduction or 50% deduction. Some of the donations are subject to qualifying limit of 10% of adjusted gross total income. From Financial Year 2017-18 onwards, donations made over Rs. 2,000/- by cash will not be allowed as deduction. Donations made above Rs. 2000/- other than cash will qualify for deduction under section 80G.
25. Deduction on contribution given by companies to political parties, section 80GGB
Section 80GGB deduction is available to an Indian Company for amount contributed by it to any political party or an electoral trust. The political party should be registered under section 29A of representation of peoples Act.
26. Deduction on contributions made by individuals to political parties as per section 80GGC
Deduction under section 80GGC is available for any amount contributed to political parties other than cash.
27. Deduction of income of royalty or patent under section 80RRB - Rs. 3,00,000/-
Deduction on any income by way of royalty or patent registered on or after 1.4.2003 under the patents Act 1970 shall be available upto Rs. 3 lakh or the actual income received, whichever is less. The patentee tax payer must be a resident citizen of India and needs to produce certificate from appropriate authority.