Taxability of Salaried Employees - Benefits & Deductions
As tax season approaches, you may be clueless and may run in rush hour to your tax advisor. This may end up in last minute glitches like no investment proofs or lesser tax saving investment, etc. , which may result in unnecessary tax burden to you. We will try to focus on important exemptions and deductions, which you can look at while you are preparing for the return filing season.
- Deduction under section 80C
Well, this is most popular and used deduction, which allows deduction on the basis of investment in tax saving instruments. These instruments are actually in the nature of long term investments, which have lock in period of at least 3 years. Deduction under section 80C is allowed to the maximum of Rs.1500000. This deduction is segregated between 80C , 80CCD , 80CCC. Benefit can be availed if you invest in following.
1. Employees Provident Fund (EPF)
2. Approved Pension schemes
3. Life Insurance Premium
4. Equity Linked Savings Scheme (ELSS) mutual fund
5. Public Provident Fund (PPF)
6. Sukanya Samruddhi Account
7. Tax saving time deposits
8. Housing loan principal repayment
9. Annuity as prescribed for claiming deduction under section 80CCC (restricted to 10% of your salary and no deduction for more than Rs.1 lakh at a time)
10. Contribution to the prescribed pension plans under section 80 CCD (restricted to 10% of salary and no deduction for more than Rs. 1 lakh at a time)
- Deduction under section 80CCG
This deduction is allowed under RGESS (Rajiv Gandhi Equity Saving Scheme), which specifies certain conditions as below.
1. The Deduction can be available only to the first time investor in the share market.
2. Your annual income should be Rs. 10 lakhs or less.
3. Investment allowed at most of Rs. 50000, however deduction available only for 50% of such amount
This scheme was designed to encourage equity investment, however there was a low response due to the complexity and the non viability of the rules.
- Deduction under section 80D
This deduction is allowed for medical or health insurance policy obtained by the taxpayer. Its deduction can be summarized as below:
Assessee, spouse and children (maximum allowed)
Maximum total cap
Where no one is a senior citizen (above 60 years)
Where only parents are above 60 years
Where assessee or spouse as well as parents are above 60 years
Preventive health check up for Rs.5000 is inclusive in above limits and hence can not be allowed over and above these limits.
- Deduction under section 80DD
This deduction is for medical treatment for disability of dependents who have disability of 40%. The deduction is for Rs. 75000 in case of 40% disability, and is enhanced to Rs. 125000, where disability is severe.
- Section 80DDB
This is similar to section 80DD, but this section allows a deduction for treatment of specific critical ailments like dementia, malignant cancers etc. Deduction can be availed for Rs. 40000, however the deduction limit is enhanced for senior and very senior citizens. It is Rs. 60000 for senior citizens and Rs. 80000 for very senior citizens. The only point to remember is to obtain and furnish a doctor’s certificate.
- Section 80E
This deduction is allowed for loan taken for higher education for self, spouse , children only. However, it is restricted to certain conditions as follows.
1. Loan is taken from the financial institutions.
2. Tenure for deduction – 7 years or loan repayment tenure whichever is lesser.
3. Available for higher education in foreign country also.
- Section 80EE
Budget 2016 has come up with this deduction for first time home buyers only. Additional deduction for interest on housing loan up to Rs. 50000 is available under this section. The conditions are that the loan should not exceed Rs. 35 lakh and value of the house should not exceed Rs. 50 lakh.
- Interest on housing loan
This is not s deduction, however, it acts as a reduction of taxable income. Interest on housing loan is a negative income under the head house property. It is allowed to be set off against salary income and hence can be utilized for reducing the tax burden as well. Deduction under section 24 (B) for interest on housing loan for SOP (Self Occupied Property) is Rs. 2 lakh and there is no restriction on such deduction for LOP or DLOP (Let Out or Deemed Let Out Property).
- Section 80GG
This deduction is available only for those who don’t receive House Rent Allowance (HRA) and do not own residential house either. Deduction is allowed to the least of the following.
1. Rent paid – 10% of adjusted total income
2. Rs. 5000 per month
3. 25% of total income
- HRA (House Rent Allowance)
This is an exemption which is allowed only where the employee does not have a house and is staying in the rental accommodation. The exemption allowed to the least of the following.
1. Rent paid – 10% of salary
2. 50% of basic salary (Metro cities) or 40% of basic salary (other cities)
3. Actual HRA received
- Leave Travel Concession (LTC)
This exemption is available for 2 journeys in the block of 4 years. The deduction is for the amount which is limited to the actual expenses incurred for travelling and does not include the total cost of vacations (hotel etc.). Also one more point is that travel to foreign countries is not covered herein. Please refer to the actual exempted amount in LTA/ LTC rules.
- Section 80G
This section covers deduction for the amount donated to certain specified institutes or trusts. The deduction is bifurcated under 3 categories.
1. Donations which are allowed @ 100% of the donated amount.
2. Donations which qualify for 100% of gross adjusted income
3. Donations which qualify for 50% of gross adjusted income
Donations in kind are inadmissible for deduction and remember to receive the receipt which would
substantiate the donation made by you to such trusts.
This article has summarized very important provisions relating to exemptions and deductions from salary income. However, it is better if you could seek the advice of tax expert if you are in hurry, because this is just an outline.