July is an important month for Indian taxpayers as they get around to calculating their income and filing their tax returns for the previous financial year. This year, the 31st July tax-filing deadline for the financial year 2020-21 has been postponed to 30th September 2021 for tax filers other than tax audit cases. While this gives taxpayers two more months, it is still just about enough time to get all of their documents, details and deductions in order.
Indian tax laws allow taxpayers to claim tax deductions on certain investments and payments made during the financial year. Let’s look at these nine important tax deductions that you can claim while filing your income tax return this year as a salaried individual.
1. An investment made in the National Pension Scheme (NPS)
Section 80CCD (1b) of the Income Tax Act allows taxpayers to claim a deduction of up to Rs.50,000 towards payment made to the Central Government’s Pension Scheme. This is excluding any deduction already claimed under Section 80CCD.
Further, under Section 80CCD(2), a deduction of the contribution made by an employer to the Central Government’s Pension Scheme is allowed. There are two conditions to be satisfied here:
i) For individuals employed by state governments, PSUs, or private entities, the deduction limit is capped at 10% of basic salary plus Dearness Allowance (DA).
ii) For individuals employed by the Central Government, the deduction limit is capped at 14% of basic salary plus DA.
2. Payments made for life insurance, provident fund, childrens’ tuition, etc.
Section 80C of the Income Tax Act allows deductions for expenditure incurred towards life insurance premiums, provident fund, investments in National Savings Certificates (NSC), tuition fees paid for up to two children, Senior Citizen Savings Scheme (SCSS), ULIP, tax-saving fixed deposits for five years, principal repayment of housing loan, etc.
Further, Section 80CCC covers deductions of payments made to annuity pension plans. Section 80 CCD(1) allows a deduction on payments made to Central Government pension schemes but is limited to 10% of salary. All deductions made under these Sections have a blanket cap of Rs.1.5 lakh per annum.
3. Payments made for health insurance
Section 80D of the Income Tax Act allows for a deduction of a health insurance premium paid. Here, a deduction of Rs.25,000 per annum can be claimed for an individual, their spouse and dependent children. The limit is increased to Rs.50,000 in the case of senior citizens. Likewise, deductions are available for health insurance premiums paid for parents. The limits of Rs.25,000 and Rs.50,000 apply depending on the age of the parents. For preventive health checkups, a deduction of Rs.5,000 is allowed but within limits specified.
4. Interest paid on education loan
Under Section 80E of the Income Tax Act, interest payments on higher education loans are eligible for a tax deduction. The loan should be taken from a financial institution or an approved charitable institution. The loan should be only for the salaried employee, their spouse or dependent children. This is one of the rare deductions without an upper limit.
5. Interest paid on housing loan
If a salaried employee owns a house property, he can claim a deduction under Section 24(b) of the Income Tax Act. This deduction is for the interest payment on his housing loan. Note that the principal component of the loan is already covered under Section 80C. The deduction is capped at Rs.2 lakh per annum in the case of self-occupied house properties.
6. Additional interest on housing loans
Interest paid on housing loans is also covered under Section 80EE and 80EEA of the Income Tax Act. However, these sections have certain restrictions on the loan values and house property values and are available only to first-time home buyers. 80EE is applicable for loans sanctioned between 1st April 2016 and 31st March 2017 and is capped at Rs.1.5 lakh per annum. 80EEE is applicable for loans sanctioned between 1st April 2019 and 31st March 2022. The deduction under Section 80EEA is capped at Rs.50,000 per annum. The taxpayer should not have claimed a deduction under Section 80EE to claim the 80EEA deduction.
7. Interest paid on electric vehicle loans
Budget 2019 introduced an incentive for the purchase of electric vehicles. A new Section 80EEB was introduced, allowing individual taxpayers to deduce their electric vehicle loans. The deduction is restricted to Rs.1,50,000 and is available provided the loan has been sanctioned between 1st April 2019 and 31st March 2023.
8. Expenses incurred on a disabled dependent
Section 80DD of the Income Tax Act provides for a deduction of expenditure that has been incurred on a disabled dependent. It could be for the dependent’s medical treatment or maintenance. This deduction is allowed only if the taxpayer has not already claimed a deduction under Section 80U of the Act. The deduction amount is Rs.75,000 or Rs.1,25,000, depending on the severity of the disability as specified under the Income Tax Act.
9. House rent paid (for salaried individuals without HRA)
Under Section 80GG of the Income Tax Act, salaried individuals can claim a tax deduction on the rent paid to their landlord. However, this deduction applies only when there is no House Rent Allowance (HRA) received from the employer. One more condition to be fulfilled here is that the employee, their spouse or minor child should not own any residential accommodation at their place of work.
The deduction is limited to least of the following:
i) Rs.5,000 per month
ii) 25% of the total income (excluding long-term capital gains, short-term capital gains under section 111A, income under Section 115A or 115D, and deductions under 80C to 80U. Also, the income is calculated before making a deduction under section 80GG).
iii) Actual rent paid minus 10% of total income
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