Guide to Income Tax Deductions

The due date of filing income tax return has gone by. As a law-abiding citizen you must have calculated your total income and paid tax on it during the year itself. And the details of the same must have been stated in the return.  But the good news is that our tax laws help us in reducing our tax outgo by way of deductions from the total income. If you have not accounted for these deductions, you can still do so and file a revised return.

Guide to tax deductions

Let’s take a look at the various deductions:

Section 80 C

This is the most well-known section for claiming deduction from gross total income. Under this section, you can claim deduction upto Rs 1.5 lakh. The list of expenses eligible for deduction is quite comprehensive. This includes premium paid for life insurance from any life insurer, payment made to PPF account, contribution to ELSS( Equity linked saving schemes), the principal portion of the home loan for buying or constructing a residential property. Apart from this, contribution to employee provident fund or recognized provident fund, subscription to the NSC (National Saving certificates) also make up for deductions under section 80 C.

Retirement planning expenditure

Planning for retirement years is tax friendly too. Under section 80 CCC, if you have subscribed to any annuity plan from a life insurer, the premium paid towards it is available for deduction. This is upto the limit of Rs 100000 annually. Moreover, any contribution made to the National Pension Fund can be claimed as a deduction under section 80 CCD.

Rajiv Gandhi Equity saving scheme

If you have invested in the new Rajiv Gandhi Equity saving scheme, under section 80CCG the deduction is available to you. The scheme is meant for investment by people whose annual income is less than Rs 10 lakh per year. You can claim 50% of the total invested amount as deduction. The maximum investment amount for the same is Rs 50000 per year.

Medical insurance

The rising cost of medical treatment has ensured that one buys a health insurance plan. The good news is that under section 80 D any payment made towards it is available for deduction. In case you are a senior citizen, you can claim deduction for premium paid upto Rs 20,000 from your gross total income. However, if you are an individual other than senior citizen and pays medical insurance premium for yourself or for your spouse and children, the deduction limit is set at Rs 15,000. You can buy a medical insurance policy for senior citizen parents too where the deduction limit is Rs 20000. Therefore, the total deduction you can claim for medical insurance premium comes to Rs 35,000 in all.

Medical expenditure

Under section 80 DDB, deduction is available for expenditure incurred on oneself or dependent relative for medical treatment of specified ailments. This is to the extent of Rs. 40,000 or the amount actually paid, whichever is less. In case you are a senior citizen the limit is set at Rs 60,000. For the same you need to furnish a form 10 I from any registered doctor. Also deduction is available for expenditure incurred on medical treatment of handicapped dependent relative. This is to the extent of Rs 50,000. Any payment made to a specified scheme for maintenance of dependent handicapped relative also qualifies for the same under section 80DD.

Higher education cost

Since the cost of higher education is rising, families are left with no choice but to stretch their budgets and go for loans. But the tax law, on the other hand, provides relief on this front. You can claim deduction for the payment made as an interest for the loan taken for higher education. The loan can be taken by oneself, parent or relative. The deduction is available for the interest paid upto eight successive years according to section 80E.

Saving deposit interest

If you have included interest earned on your savings account in your return, you have done a good  job. While we furnish big ticket details, we often fail to tell how much our saving deposits earned in a year. The tax authorities reward those who keep this minute detail in mind. Under section 80TTA, the deduction is allowed to you on the interest on your saving bank account if it is to the tune of Rs 10,000 or less in a financial year. So go ahead and provide details regarding saving account interest.

Physical disability

This section helps you in claiming deduction for any physical disability that you suffer. The disability includes blindness and mental retardation as well. However, you have to submit a certificate from the doctor in this regard. The limit for claiming deduction is Rs 50,000. However, if you suffer from a major disability (more than 80%) a limit up to Rs 1 lakh can be claimed under section 80U.

Interest on home loan

Under section 24B, you can reduce your tax liability if you have taken a home loan. While the principal portion already qualifies for deduction under section 80 C, the interest part to the tune of Rs 1.5 lakh a year can be claimed as a deduction to lessen your tax outgo.


Your social contributions do not go waste. For your charitable deeds you can claim tax benefits. Under section 80 G of the Income Tax Act, amount contributed for social causes can be claimed as a deduction. This includes contribution to various funds set up by the government like National Defence Fund, Prime Minister Relief fund, earthquake fund, sports fund. Donations to certain charitable organizations can also be claimed for deduction. Then there are donations which help you claim only 50 % deduction. These include payment made to Jawaharlal Nehru Memorial fund, Prime Minister’s drought relief fund, National Children fund and Indira Gandhi and Rajeev Gandhi Foundation.

Some donations have a qualifying limit attached to them. However, keep in mind that any donation made in kind like food, clothes is not eligible for deduction. For amount over Rs 10,000, the contribution has to be made through cheque in order to qualify for deduction.  Moreover, donations made to the educational institutions for admission purposes do not qualify for deduction. So before you make a donation check how much per cent age of the same you can be claim for reducing tax liability.


Any income earned as a royalty in respect of a patent registered after March 2003 is eligible for deduction. The deduction is Rs 3 lakh or the royalty received whichever is less under section 80RRB. However, to avail the same, you have to furnish a certificate by the recognized authority regarding it. Similarly, you can claim deduction from royalty earned from writing books under section 80QQB.

Rental Expenditure

While HRA(House Rent Allowance) portion of the salary is exempted to a certain extent, you can claim deduction for the rent paid too. But this is possible only when your cost to company(CTC) does not include HRA or you are a self employed personal. Under Section 80GG this provision has been made. However, you are eligible for least of the following-rent paid, less 10% of total income or Rs 2,000 a month or 25% of the total income. Also your spouse should not own a house in the city. If you meet these conditions, you can avail of the tax benefit. By claiming Rs 2,000 as deduction per month, you can bring down your tax liability by Rs 7,200 a year in the highest tax bracket.

Capital losses

Did you know the capital losses that you incur can also bring down your tax outgo. If you have made any long-term or short term capital gains from the sale of property, gold or debt funds, you can set them off against short-term capital losses in stocks. Suppose you made a long-term capital gain of Rs 3 lakh by redeeming debt funds. The tax payable on this amount is Rs 30,000 without indexation. If, on the other hand, you sold some stocks within a year of buying and made a short-term loss of Rs 2 lakh, you can set this off against the gains from the debt funds. So the gain reduces to Rs 1 lakh and the tax payable would be Rs 10000 only. Another thing to keep in mind is that the losses that have not been adjusted can be carried forward for up to eight years.

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