Income Tax Deductions 2023-24 under various Sections for tax planning:
Benjamin Franklin once rightly opined “In this world nothing can said to be certain, except death and taxes”. All of us go through the same dilemma of finding out which is the most appropriate method of reducing our income tax liability. Most of us don’t plan about tax liability in the beginning of the financial year and get startled when the accounts department asks for tax saving investment proof. In a hurry, we tend to invest in tax-saving schemes without considering our financial goals.
It is very important to recognize that tax planning goes hand-in-hand with financial planning. An individual cannot achieve his financial goals if he fails to shoulder his tax liability appropriately. Thus, Tax Planning is considered as an important activity for financial planning and has emerged as a prudent method to ensure that one doesn’t end up shouldering heavy tax burden. In fact, tax planning is a smart choice to manage one’s taxes while remaining inside the legal framework. Tax planning encompasses availing tax deductions, exemptions, rebates and reliefs prescribed by the authorized bodies. By means of tax planning the tax payer is motivated to divert his unutilized surplus funds to productive purposes and investment schemes. In the long run, such an activity leads to capital formation and economic growth of the country.
This article primarily deals with the deductions from Section 80C to Section 80U outlined in the Income Tax Act 1961. When the deductions are applied then the taxable income of a tax payer comes down. Many expenditures like tuition fees, medical expenses and investments in life insurance, retirement schemes and charitable contributions would qualify an individual to avail such deductions. In order to avail income tax deductions, one needs to check his status as a resident individual and the maximum amount of deduction that can be claimed under each section.
The deductions available to you under each section and the eligibility criteria have been discussed at length in the following paragraphs for your understanding:
1. Deduction under Section 80C
This section and its subsections allow you to claim income tax deductions on account of investment in varied avenues like insurance policies, Central Government Schemes, equity schemes, bonds, etc.
For your consideration following are some of the investment avenues notified under Section 80C:
Payment of premium towards life insurance policy or deferred annuity (on the life of self, spouse or children).
Contribution to recognized provident fund like PPF or EPF.
Subscription to any notified security or notified deposit scheme of the Central Government like Sukanya Samriddhi Account Scheme.
Payment of tuition fees for educating maximum of 2 children in any educational institution located in India.
Term deposit for not less than period of 5-year with a post office or a scheduled bank.
Stamp duty and registration charges paid towards purchase or building of house property for residential purposes.
Principal repayment on home loans for purchase of residential property (maximum limit is Rs. 1.5 Lakhs).
Subscription to notified bonds of NABARD or to notified unit-linked insurance plan of LIC Mutual Fund.
The related subsections of Section 80C are as follows:
Deduction under Section 80CCG: You can even invest in certain notified equity saving schemes like Rajiv Gandhi Equity Savings Scheme to claim a maximum tax deduction of Rs. 25000. This deduction is available over and above amount of Rs. 1.5 Lakhs claimed under Section 80C. It can be claimed from the date of purchase of equity scheme to succeeding 3 consecutive years. However, you need to keep in mind that your investment should remain locked in for period of 3 years to be eligible for such deduction.
Before investing money in any scheme, you should check your risk appetite and consider your financial goals. The maximum amount of deduction available under this head has been capped at Rs 150,000 which is an aggregate of deduction claimed under Section 80C, 80CCC and 80CCD.
2. Deduction under Section 80D
The health insurance premiums that you pay on your policy could fetch you a tax deduction of up to Rs. 25,000. Moreover, the policy can be taken on your health or health of your spouse and dependent children. If the health insured is of a senior citizen, the tax deduction amount goes up to Rs. 50,000. You may additionally cover the health of your parents for which an amount up to Rs. 50,000 is allowed as deduction. The amount contributed in a Central Government health Scheme for preventive health check-up is also deductible under this section subject to maximum limit of Rs. 5000. However, remember that the cumulative amount of deduction available for all the above expenditure cannot exceed Rs. 75,000.
3. Deduction under Section 80DD
An insurance policy taken towards treatment and rehabilitation of your dependent relative who is disabled person, could qualify you to claim a tax deduction. The maximum limit has been capped at Rs. 75,000 and Rs. 1.25 lakhs if the dependent suffers from severe disability.
4. Deduction under Section 80DDB
Nowadays, medical expenses for treatment of critical diseases like AIDS, cancer, neurological ailments, etc. are on a rise and are burning a hole in your pocket. You may obtain some respite by claiming such medical expenditure as a tax deduction up to an amount of Rs. 40,000. If you or your dependents are a senior citizen, then an extended limit of Rs 1,00,000 has been given for such treatment. But make sure you get a written prescription from the specialist doctor i.e. oncologist or neurologist, as may be the case, to avail this deduction.
5. Deduction under Section 80E
Pursuing higher education involves lots of money and may require you to go for an education loan for yourself or for your children from a financial institution like bank. But do you know that the entire amount of interest paid by you on education loan is allowed as a deductible expense! However, such income tax deductions are available for a maximum period of 8 years.
6. Deduction under Section 80EE and under Section 24
When you take home loan for the purpose of purchasing or constructing a house property, the amount of interest payable annually on housing loan can be claimed as a tax deduction under Section 24. If the interest becomes payable prior to commencement of construction, then all such interest installments payable would be aggregated and would be allowed as deduction in five succeeding years beginning from the year in which the construction stands completed. In case of self-occupied property, the maximum limit of deduction allowed is Rs. 2 Lakhs. If the construction is not completed within 3 from year of borrowing, then maximum deduction allowed would be Rs. 30,000.
The Budget 2016 appears promising for the first-time home buyers regarding the interest payable on home loans. An additional deduction of Rs. 50,000 has been allowed by the government under Section 80EE towards the interest payable on home loan for first-time home buyers. This additional deduction would be available on a condition that the value of house property should not be more than Rs. 50 Lakh and the loan amount borrowed for the purpose should not exceed Rs. 35 Lakh. Moreover, you would be required to take the loan in between 1st April 2016 and 31st March 2017.
7. Deduction under Section 80G
Giving charity is a wise act socially and financially as well. The charitable contributions you make to approved funds, trusts, charitable institutions, notified temples, notified relief funds established by Central Government or State Government for promoting social cause, culture and arts, sports, welfare of the disabled, etc makes you eligible to claim a tax deduction. When you donate to relief funds like National Sports Fund, National Cultural Fund, Prime Minister’s Armenia Earthquake Relief Fund, etc, you can claim the entire amount as tax deduction. However, qualifying amount of donations for other categories is subject to certain limits.
8. Deduction under Section 80GG
If you happen to be residing in a furnished or unfurnished rented accommodation and if you do not receive any house rent allowance, then Section 80GG holds very much relevance for you. Under this, you can show your monthly rent of either up to Rs 5,000 per month or 25% of your total income or Actual rent less 10% of income; whichever is less, as a tax deduction.
9. Deduction under Section 80GGA
Those taxpayers who do not have earn income by way of Profits and Gains of business or profession are allowed to claim a deduction for the donation made towards promotion of scientific or social research or development projects of the government. The maximum limit of deduction has been set Rs 10,000 wherein the donation is made by cash, whereas there is no limit on deduction wherein the donation has been made by non-cash modes.
10. Deduction under Section 80GGC
100% of the contributions made by individuals to any political party or electoral trust by non-cash modes are eligible for deduction under this section.
11. Deduction under Section 80QQB
Do you know that authoring books can be beneficial from tax planning point of view! Under this section, income earned by a resident individual author by way of royalties on books of specified category can be claimed as a tax deduction subject to a maximum amount of Rs. 3 lakhs.
12. Deduction under Section 80RRB
When you are earning royalty in respect of a patent registered on or after 1-4-2003, you make yourself eligible to claim such an amount as a tax deduction up to maximum limit of Rs. 3 lakhs.
13. Deduction under Section 80TTA
Holding saving account in banks not only provides you interest on your funds but also helps you to claim such interest earned as a tax deduction. The maximum amount of tax deduction available for this is Rs 10,000.
14. Deduction under Section 80U
Individuals who have been certified as disabled by the medical authority in accordance with the provisions of Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995] are allowed for tax deduction of Rs. 75,000. This limit would be increased to Rs 1.25 Lakh in case of severe disability. Some of the disabilities identified in the act are Autism, Cerebral Palsy, Mental Retardation, etc.
Instead of a piecemeal approach, tax planning needs to be performed on a continued basis and in tandem with your financial planning. Deductions available under Income Tax Act are there to assist you but at the same time consider the eligibility criteria, the maximum amount of permissible deductions and your financial goals while making investments. In a nutshell, a systematic and well-planned approach to fulfil your tax liability would ensure peace of mind and financial well-being.