You can save quite a bit of tax via Exemptions and Deductions – Take a look at the list below and see all that are applicable to you and make sure you ( or your CA ) take advantage of it.
Certain types of income are exempted from tax. In other words, one need not pay any tax on such income. Incomes described in section 10 of the Income Tax Act, are not included in the calculation of total income of an individual, for the purpose of determining tax liability. Some important types of income exempt under Section 10 are produced as under:
- Section 10(1) exempts agricultural income from tax. If the net income from agriculture exceeds Rs. 5000 and the individual has taxable non-agricultural income, then incremental tax has to be paid on agricultural income.
- Section 10(2A) exempts the income representing the share of a partner in a firm from tax.
- Section 10(5) exempts from tax concession received by an employee for proceeding on leave to any part of India, subject to prescribed conditions.
- Concession received for travel to any place following retirement or termination from service is also exempt
- Any amount received as retirement dues by way of gratuity, pension, leave encashment, retrenchment compensation and voluntary retirement compensation is exempt. This exemption will be up to prescribed limits. Any amount above the limits will be taxed under the head ‘Income from salary’.
- Section 10(10D) exempts from tax any amount received from an insurance policy, including bonus.
- Section 10 (32) exempts from tax, the income of a minor child clubbed with that of the parent, to the extent of the lower of Rs.1500 or actual income.
- Dividends received from a company or mutual funds, on which dividend distribution tax has already been paid, are exempt from tax in the hands of the investor.
- Long-term capital gains realized from the sale of shares of a company or units of equity-oriented mutual funds, are exempt from tax provided they are sold through a recognized stock exchange and securities transaction tax (STT) has been paid as applicable.
Either the investment made, or the income received on the investment, or both, can be deducted (usually up to a certain limit) from the taxable income. In other words, the income tax one pays gets reduced, to the extent that some income or investment is deducted from the amount that is subject to tax. Below mentioned are some of the most often used deductions.
- Section 80 C allows for expense incurred under certain heads or investments made to be deducted from the total income. 100% of the amount invested or Rs.1,50,000, whichever is less, is available as deduction from total income.
- Life insurance premium paid towards life of self, spouse or any child in case of an Individual and members in case of a Hindu Undivided Family.
- Payment towards a deferred annuity contract on life of self, spouse or any child in case of an individual.
- Contribution towards statutory provident fund, recognized provident fund, approved superannuation fund.
- Contribution towards Public Provident Fund Scheme, 1968 in the name of self, spouse or any child in case of an individual or member in case of HUF.
- Any sum deposited in a 10 year or 15 year account under the Post Office Savings Bank (CTD) Rules, 1959.
- Subscription to the NSC (VIII Issue).
- Subscription to units of mutual fund Equity Linked Savings Scheme notified by the central government.
- Contribution by an individual to any pension fund set up by any Mutual Fund referred u/s 10(23D).
- Subscription to any such deposit scheme of National Housing Bank (NHB), or as a contribution to any such pension fund set up by NHB as notified by Central Government.
- Subscription to notified deposit schemes of (a) Public sector company providing long-term finance for purchase/construction of residential houses in India or (b) Any authority constituted in India for the purposes of housing or planning, development or improvement of cities, towns and villages.
- Tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), to any university, college, school or other educational institution situated within India for the purpose of full-time education of any two children of individual.
- Towards the cost of purchase or construction of a residential house property (including the repayment of loans taken from Government, bank, LIC, NHB, specified assessee’s employer etc., and also the stamp duty, registration fees and other expenses for transfer of such house property to the assessee). The income from such house property should be chargeable to Tax under the head “Income from house property”.
- Subscription to equity shares or debentures forming part of any eligible issue of capital of public company or any public financial institution approved by Board.
- Term Deposit (Fixed Deposit) for 5 years or more with Scheduled Bank in accordance with a scheme framed and notified by the Central Government.
- Subscription to any notified bonds of National Bank for Agriculture and Rural Development (NABARD) (applicable from the assessment year 2008-09).
- Account under the Senior Citizen Savings Schemes Rules, 2004.
- Five year term deposit in an account under the Post Office Time deposit Rules, 1981.
- Section 80CCC allows deduction from total income for contributions made to specified pension funds. Deduction under this section is included in under the Rs. 100000 limit specified under section 80C. Deduction under this section is available within the overall limit of Rs. 1,00,000 available for sections 80C, 80CCC, and 80CCD.
- Section 80CCD In case of New Pension Scheme, the employee contribution up to 10% of basic plus dearness allowance, or DA, is eligible for deduction under Section 80CCD within the Rs 1.5 lakh limit, the employer’s contribution up to 10% of basic plus DA is eligible for deduction under Section 80CCE over and above the Rs 1.5 lakh limit.
- Section 80CCG pertains to Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS). The scheme allows retail investors who are investing for the first time to avail a tax benefit on 50% of the investment made up to Rs.50, 000 directly into RGESS eligible securities.
- Premium paid on health insurance policies is allowed as deduction from total income, within the limits specified by section 80D.
- Section 80DD allows deduction on expenses of maintenance of disabled persons up to a limit of Rs. 50,000 or Rs. 1,00,000 depending upon the severity of disability.
- Section 80DDB allows deduction of the expenditure on medical treatment for specified diseases such as Parkinson, up to a limit of Rs.60,000 for senior citizens and Rs.40,000 for others.
- Section 80E allows the entire interest paid on education loan as deduction from the assessment year relevant to the previous year in which the assessee begins paying interest and seven subsequent years.
- Section 80G allows all assessee’s to claim deduction up to specified limits for contributions made to charitable organisations.
- Section 80GG provides deduction to an assessee not receiving HRA for rent paid by him up to specified limits.
- Section 80U allows deductions for persons with disabilities of Rs. 50,000 for normal disability and Rs. 1,00,000 for severe disability.
The above list is not exhaustive and may change from time to time based on Income Tax Rules.