Various Deductions available to Individual assessees under the Income Tax Act and whether you should avail the new tax rates for the FY 2020-21
An important relief measure announced by the finance minister was the extension of the due date for investments in tax saving instruments from 31st March 2020 to 30th June 2020 for the financial year 2019-20.
We shall below discuss some of the various investment options that are available for the tax payers under various section of the income tax act which the tax payer can choose to invest for the FY 2019-20 as well as the current FY 2020-21;
Sec. 80C – Total Eligible deduction – Rs.1,50,000/-
S.No.
|
Provision
|
Explanation
|
1
|
Life Insurance Premium
|
Life insurance premium paid on the life of self, spouse and any children. It is allowed in the year in which payment is made.
For life policy taken before 01-04-2012, premium should not exceed 20% of actual capital sum assured
For life policy issued from 01-04-2012, premium should not exceed 10% of actual capital sum assured (15% for life policy on disabled persons from 01-04-2013)
|
2
|
Amount paid under contract for deferred annuity plan
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A deferred annuity is a contract with an insurance company that promises to pay the owner a regular income, or a lump sum, at some future date. Such annuity plan may be taken on the life of self, spouse and any children
|
3
|
Payment made by Govt. employee for securing deferred annuity
|
Such payment for self, spouse or children but up to only 20% of salary
|
4
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Contribution to Statutory provident Fund
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Provident funds covered under Provident Fund Act, 1925
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5
|
Contribution to Provident Fund set up by Central Govt.
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Contribution to Public Provident Fund in the name of self, spouse or children
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6
|
Contribution by an employee to a Recognised Provident Fund
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Recognised provident fund under Employees’ Provident Funds Act, 1952.
|
7
|
Contribution by an employee to an Approved Superannuation fund Recognised Provident Fund
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A superannuation is an organizational pension program created by a company for the benefit of its employees. Any contribution to an approved superannuation fund is deductible.
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8
|
Subscription to any Security or Deposit scheme of Central Govt.
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Contribution to Sukanya Samriddhi Account in the name of the girl child has been notified
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9
|
Subscription to Saving certificates notified by Central Govt.
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Investments in National Saving Certificate (VIII issue) has been notified
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10
|
Contribution towards Unit Linked Insurance Plan of UTI
|
Contribution by a person in his name or in the name of the spouse or children in the ULIP of UTI
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11
|
Contribution towards Unit Linked Insurance Plan of LIC Mutual Fund
|
Contribution by a person in his name or in the name of the spouse or children in the ULIP of LIC Mutual Fund
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12
|
Amount paid under contract for deferred annuity plan of LIC or any other insurer
|
Annuity plan of LIC / ICICI Prudential Life / Tata AIG has been notified to be taken on the name of the assessee
|
13
|
Amount paid for purchase of Units of Mutual Fund or UTI scheme of Central Govt.
|
Investments in units of Mutual funds registered with SEBI/ Public Sector Bank. Also, Equity Linked Savings Scheme (ELSS) has been notified by the Govt.
|
14
|
Contribution to any pension fund set up by any Mutual fund or UTI notified by Central Govt.
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Contributions to UTI-Retirement Benefit Pension Fund/ Reliance Retirement Fund/ HDFC Retirement Savings Funds has been notified
|
15
|
Contribution to any deposit scheme or pension fund set up by National Housing Bank
|
National Housing Bank (Tax Saving) Term Deposit Scheme, 2008 has been notified for the investment
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16
|
Amount of subscription to notified deposit scheme of public sector company or any authority providing long-term finance for construction of residential houses etc.
|
Public Deposit Scheme of Housing and Urban Development Corporation Ltd. has been notified for subscription
|
17
|
Children Education Expenses
|
Tuition fee paid at the time of admission or thereafter to any university, college, school or other educational institution situated in India towards full time education of any two children. It includes play school activities, pre-nursery and nursery classes.
Development fee/ Donation/ Capitation fee/ similar fee are not allowed as deduction.
|
18
|
Amount paid for purchase or construction of residential house
|
The following are the deductions available;
a) Instalment or part payment of amount due under any self-financing scheme of any development authority/ housing board engaged in construction and sale of house property on ownership basis
b) Instalment or part payment of amount due to any company or co-operative society of which assessee is a shareholder/ member towards cost of house property allotted
c) Repayment of amount borrowed from Central/State Govt, Bank, LIC, National Housing Bank or any public company proving long term finance for construction or purchase of house for residential purpose, assessee’s employer who is an authority/board/corporation/public company/PSU/University/College/Local Authority/Co-operative society
d) Stamp duty, registration fee and other expenses paid for purchase of such house
Following amount are not eligible for deduction – Admission fee, cost of share, initial deposit for becoming member/shareholder, cost of alteration or improvement after occupancy
The House property should not be transferred for a period of 5 years
|
19
|
Subscription to equity shares or debentures of an eligible issue
|
For the eligible issue approved by CBDT for businesses referred u/s.80-IA(4)
|
20
|
Subscription to units of any mutual fund
|
For the eligible issue approved by CBDT for businesses referred u/s.80-IA(4)
|
21
|
Subscription to Fixed Deposit of specified tenure
|
Investments in fixed deposits of not less than 5 years tenure. Such fixed deposit should not be pledged
|
22
|
Subscription to NABARD bonds
|
Subscription to NABARD Rural Bonds can be claimed as deduction
|
23
|
Deposits under Senior Citizens Savings Scheme Rules, 2004
|
Any deposit under Senior Citizens Savings Scheme Rules, 2004 can be claimed as deduction
|
24
|
Deposits under Post Office Time Deposits
|
Investments in fixed deposits of Post office of tenure not less than 5 years. Such fixed deposit should not be pledged
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25
|
Contribution to TIER-II account of pension scheme by employee of Central Govt.
|
Any contribution to TIER-II account of new pension scheme by employee of Central Govt. for a fixed period of not less than 3 years
|
Other Investments
Section
|
Provision
|
Explanation
|
80CCC
|
Contribution to certain pension funds by individuals
|
Amount paid to for an annuity plan of LIC or others for receiving pension.
|
80CCD(1)
|
Contribution to new pension scheme by individuals
|
Deduction to be allowed subject to
Contribution by employees – 10% of salary
Contribution by self-employed – 20% of Gross total Income
|
80CCD(1B)
|
Additional deduction of Rs.50,000/- for contribution to notified pension scheme
|
Additional deduction of Rs.50,000/- over and above Rs.1,50,000/- shall be allowed for contributions to New Pension Scheme or Atal Pension Yojana
|
80CCD(2)
|
Deduction in respect to contribution by employer to employee pension account
|
Deduction in respect of contribution to pension account of the employee by the employer is allowed up to 10% of the salary (14% for Central Govt. employees)
|
Note:
1) The total of deductions under section 80C, 80CCC and 80CCD(1) shall not exceed Rs.1,50,000/-
2) Deduction u/s. 80CCD(1B) is additional deduction over and above Rs.1,50,000/-. That is to say, if the maximum limit of Rs.1,50,000/- is exhausted, the assessee can choose to invest u/s.80CCD(1B) to claim additional deduction of Rs.50,000/-
3) Salary u/s.80CCD means Basic salary and Dearness Allowance only.
4) The proceeds/ pension received from the closure of the above pension schemes shall be taxable subject to certain conditions
Deduction U/s.80D – towards medical expenditure and health as insurance premium in case of individuals
S.No.
|
Provision
|
Explanation
|
1
|
Insurance on health of the assessee, spouse or children / Contribution to Central Govt. Health Scheme
|
Health insurance premium paid up to maximum of Rs.25,000/- is allowed as deduction (if the insured is a senior citizen, then up to Rs.50,000/- is allowed)
|
2
|
Amount paid on preventive health check-up of assessee, spouse or children
|
Amount paid up to maximum of Rs.5000/- is allowed as deduction (This amount of deduction is included in the total ceiling of Rs.25,000/- or Rs.50,000/-, as the case may be specified in point 1)
|
3
|
Medical expenditure incurred on health of assessee, spouse or children provided such person is a senior citizen resident in India
|
Expenditure incurred up to total of Rs.50,000/- provided no health insurance is taken on such person
|
4
|
Insurance on health of the parents of the assessee
|
Health insurance premium paid up to maximum of Rs.25,000/- is allowed as deduction (if the insured is a senior citizen, then up to Rs.50,000/- is allowed)
|
5
|
Amount paid on preventive health check-up of parents of the assessee
|
Amount paid up to maximum of Rs.5000/- is allowed as deduction (This amount of deduction is included in the total ceiling of Rs.25,000/- or Rs.50,000/-, as the case may be specified in point 4)
|
6
|
Medical expenditure incurred on health of parents of the assessee resident in India
|
Expenditure incurred up to total of Rs.50,000/- provided no health insurance is taken on such person
|
Note:
1) The aggregate amount specified in 1,2 & 3 or the aggregate amount specified in point 4,5 & 6 shall not exceed Rs.50,000/-
2) In the case of a single insurance premium policy, appropriate fraction would be allowed as deduction during the tenure of the insurance
3) U/s.80D, children means dependent children of the assessee
The maximum permissible deduction as per the provisions of Sec. 80D can be summarized below;
S.No.
|
Particulars
|
Self, spouse and Children
|
Parents
|
Total Amount
|
1
|
No person is above 60 years of age
|
25,000
|
25,000
|
50,000
|
2
|
Self, spouse or children are below 60 years age but at least one parent above 60 years of age
|
25,000
|
50,000
|
75,000
|
3
|
At least any one of Self, spouse or children are above 60 years age and at least one parent above 60 years of age
|
50,000
|
50,000
|
1,00,000
|
Other Deductions:
Section
|
Provision
|
Explanation
|
80DD
|
Deduction in respect of maintenance including medical treatment of a dependent who is a person with disability
|
Flat deduction in respect of medical treatment, nursing, training and rehabilitation or annuity scheme of LIC/UTI of a dependant with disability who is wholly or mainly dependent on the assessee
Dependant means spouse, children, parents, brothers and sister
Certificate from a neurologist/ civil surgeon/ Chief medical officer in Govt. hospital should be taken
Deduction allowed:
Disability above 40% - Rs.75,00/-
Disability above 80% - Rs.1,25,000/-
|
80DDB
|
Medical treatment etc., of specified diseases or ailments
|
Expenditure in respect of medical treatment of specified diseases or ailments like Neurological, malignant cancers, full blown AIDS, chronic renal failures, haematological disorders of assessee or dependants (spouse, children, parents, brothers and sisters).
Amount incurred for assessee or dependants who are senior citizen –up to Rs.1,00,000
Amount incurred for others – up to Rs.40,000/-
Prescription of the doctor is mandatory to claim the deduction
|
80E
|
Deduction in respect of Interest on loan taken for Higher Education
|
Any interest paid on loan taken for higher education of the individual or spouse or children. Deduction up to 8 assessment years can be claimed
|
80EE
|
Deduction in respect of interest on loan taken for residential house property
|
For residential house property purchased during the FY 2016-17 – Up to Rs.50,000/- is allowed as deduction
|
80EEA
|
Deduction in respect of interest on capital borrowed for purchase of residential house property
|
For assessees who are not claiming deduction u/s.80EE, a deduction of up to Rs.1,50,000/- in respect of interest on loan taken during the during the FY 2019-20 (now up to 31.03.2021) shall be allowed, provided the stamp duty value of the residential house is not more than Rs.45 lakh and the assessee does not own any residential house property.
This deduction is available to both resident and non-resident individuals.
|
80EEB
|
Deduction in respect of interest on capital borrowed for purchase of an electronic vehicle
|
A deduction of up to Rs.1,50,000/- in respect of interest on loan taken during the during the FY 2019-20 (now up to 30.06.2020) shall be allowed for the purchase of an electric vehicle
|
80G
|
Deduction in respect of donations to certain funds, charitable institutions etc.
|
Donations are subject to following limits;
1) Deduction which are allowed without any limit, i.e., full donation is allowed
2) Deduction which are allowed on 50% of the donated amount
3) Full donation allowed as deduction but restricted to 10% of Gross total Income
3) 50% of the donation allowed as deduction but restricted to 10% of Gross total Income
Such donation should not be in kind and no deduction will be allowed if it is paid in cash in excess of Rs.2000/-
A certificate/ receipt of such amount donated should be taken
|
80GG
|
Deduction in respect of rent paid
|
Deduction is available to a self-employed person or an employee not receiving HRA.
Amount of deduction is least of the following;
1) Rs.5000/- p.m. (Rs.60,000/- annually)
2) Rent paid – 10% ( Total Income)
3) 25% of Total Income
Provided that the assessee or his family should not own a house where he resides
|
80GGA
|
Contribution to scientific research or rural development
|
Eligible to assessees who does not have income under the head business or profession. Assessee has to produce a certificate from such association and the cash donation shall not exceed Rs.10000/-
|
80GGC
|
Contribution to political parties by non-corporates
|
Any person contribution in a mode other than cash to a political party or an electoral trust, shall be eligible for deduction is respect of such contribution
|
80TTA
|
Deduction in respect of interest on deposits in a saving account of Bank/ post office
|
A deduction of up to Rs.10,000/- in respect of interest on deposits (not being fixed deposits) in savings account of Bank / post office to a person not claiming deduction u/s.80TTB below.
Sec. 10(15)(i) allows a deduction of Rs.3500/- in respect of interest received on Post office Savings Bank account.
Hence, cumulatively, up to Rs.10,000/- can be claimed in respect of interest on Saving bank in Bank/post office and additional Rs.3500/- can be claimed in respect of interest in post office savings account
|
80TTB
|
Higher deduction to interest on deposits to resident senior citizens
|
A deduction of up to Rs.50,000/- in respect of interest on deposits (including fixed deposits) in a Bank / post office to a senior citizen.
Sec. 10(15)(i) allows a deduction of Rs.3500/- in respect of interest received on Post office Savings Bank account.
Hence, cumulatively, up to Rs.50,000/- can be claimed in respect of interest on deposit accounts in Bank/post office and additional Rs.3500/- can be claimed in respect of interest in post office savings account
|
80U
|
Deduction in case of permanent physical disability (including blindness)
|
Flat deduction in respect of a resident assessee with disability is allowed.
Certificate from a neurologist/ civil surgeon/ Chief medical officer in Govt. hospital should be taken
Deduction allowed:
Disability above 40% - Rs.75,00/-
Disability above 80% - Rs.1,25,000/-
|
The above are the various deductions available to an individual assessee which he/she can be claim in while doing their tax planning.
The Finance Act, 2020 has introduced a new section 115BAC, where at the option of the assessee, the assessee could opt for the below tax rates from the AY 2021-22;
S.No.
|
Total Income
|
New Tax Rate
|
Old Tax Rate
|
1
|
Up to Rs.2,50,000/-
|
Nil
|
Nil
|
2
|
2,50,001/- to Rs.5,00,000/-
|
5%
|
5%
|
3
|
5,00,001/- to Rs.7,50,000/-
|
10%
|
20%
|
4
|
Rs.7,50,001 to Rs.10,00,000/-
|
15%
|
20%
|
5
|
Rs.10,00,001 to Rs.12,50,000/-
|
20%
|
30%
|
6
|
Rs.12,50,001 to Rs. 15,00,000/-
|
25%
|
30%
|
7
|
Above Rs.15,00,000/-
|
30%
|
30%
|
The new rates seems to be attractive in comparison to the old rates, but there is catch here. The assessee is not eligible to claim virtually all the deductions which he could have otherwise claimed and that ineligible deductions include deduction on account of leave travel concession, HRA, daily allowance, deduction on income of minor, standard deduction, tax on employment, interest on housing loan, additional depreciation, deduction in case of family pension received, all deductions u/s.80C to 80U except u/s.80CCD(2), carried forward loss or unabsorbed depreciation.
Example:
An assessee having a total income of Rs.10 lakh and 80C savings of Rs.1,50,000/- would be effected by the new provisions in the following way
Particulars
|
Scenario 1
|
Scenario 2
| ||
Tax as per existing provisions
|
Tax as per Sec.115BAC
|
Tax as per existing provisions
|
Tax as per Sec.115BAC
| |
Gross Total Income
|
8,00,000
|
8,00,000
|
12,00,000
|
12,00,000
|
Deduction U/s.80C
|
1,50,000
|
-
|
1,50,000
|
-
|
Total Income
|
6,50,000
|
8,00,000
|
10,50,000
|
-
|
Tax on Total Income
|
42,500
|
45,000
|
1,27,500
|
1,15,000
|
Difference
|
-2500
|
12,500
|
Hence, from the above table, it can be seen that the new rates of tax are not beneficial to all the individuals and the assessee needs to carefully plan his tax savings and choose whether to opt for new rates or continue under the existing tax rates.
For any queries, you can write down to kishang@icai.org