Know All About the Income Tax Allowances and Deductions Allowed to Salaried Individuals

Of the entire tax-paying population lot in India, the small chunk of its salaried taxpayers bears the highest burden. It is a known fact that the bulk of India's taxes come from its salaried class, the group that forms only a part of the country's taxpayers. As such, salaried individuals are always looking to explore ways in which they can bring down their tax burden. They try and do so by making the most of all the available tax deductions and exemptions available to them.

Employers generally structure the components of an employee's salary in such a way so as to maximise the tax benefits available under various heads. Typically, there are fixed components in a salary package and there are others that an employee can structure in order to claim maximum deductions. To avail the tax exemption on various allowance components in the salary, one has to submit proof of the same. The usual components in a salary structure are basic salary, house rent allowance (HRA), leave travel allowance (LTA), phone reimbursement, meal coupons, among other things. Now, for instance, an employee lives in a rented apartment. To claim the exemption available on HRA, he or she is required to submit proof of the same (rent receipts, PAN of employer).

When we talk about deductions, the standard deduction of Rs. 50,000 is where we start from. This is a benefit available to all taxpayers, and it brings down one's gross income by the said amount. In addition to this, there are several other deductions available to salaried taxpayers. However, they are required to invest in particular assets or schemes that qualify for deduction.

Sections 80C, 80CCC and 80CCD

Among the most popular tax deduction is that which is made available under Section 80C of the Income Tax Act. Under this, a taxpayer can claim a deduction of up to a maximum of Rs. 1.5 lakh in every financial year. Section 80C offers several avenues for taxpayers to seek a deduction, some of which are listed below:

• National Savings Certificate
• Public Provident Fund (PPF)
• Employees' Provident Fund (EPF)
• National Pension System (NPS)
• Equity Linked Saving Scheme (ELSS)
• Unit Linked Insurance Plans (ULIPs)
• Life Insurance premiums
• Sukanya Samriddhi Scheme
• Contribution towards tuition fees of children
• Term deposits (for not less than 5 years)

It is to be noted here that this maximum limit of Rs. 1.5 lakh is for the aggregate deduction that a salaried taxpayer can claim under sections 80C, 80CCC and 80CCD.

Section 80D

Another similar tax deduction option is that available under Section 80D, which pertains to medical insurance. Here, one can claim a tax deduction of up to Rs. 25,000 on health insurance premium paid for oneself or for family members/dependents. This tax deduction limit is Rs. 50,000 in the case of premiums paid for senior citizens (parents). 

Deduction on loan for higher education (Section 80E) and interest on home loan (Sections 80C and 24)

Those who seek an education loan from a bank for the purpose of higher studies can claim a deduction under Section 80E of the Income Tax Act. This can be availed by an individual for himself/herself or for a spouse.

Then, you also have the relief available for home owners. If you have sought a home loan for purchase of residential property, there is a tax deduction available for the interest paid on such a loan. The deduction limit is Rs 2 lakh in the case of a self-occupied property, while the entire interest amount on the home loan can be claimed out on the property that has been rented out.

Sections 80G and 80TTA

Section 80G is regarding the deduction available on donations to charitable organisations, trusts, approved funds, etc. One can claim a deduction of up to 50% or 100% (as the case may allow) of the donation amount. Meanwhile, under Section 80TTA, one can claim a deduction of up to Rs. 10,000 on the interest income from savings account.

Disclaimer :ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. Please note, filing of tax related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. The content is solely for informational and educational purpose. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.