Tax

Deductions & Exemptions under Income Tax Act for Salaried Individuals

By CA Mangal (CA Mangal) • Published: 27-12-2019

Deductions & Exemptions under Income Tax Act for Salaried Individuals

Salaried individuals can significantly reduce their tax liability by availing various deductions and exemptions available under the Income Tax Act. This comprehensive guide covers all major deductions and exemptions.

Exemptions (Not Included in Gross Salary)

1. House Rent Allowance (HRA)

Exemption Available:

  • Minimum of:
  • Actual HRA received
  • Rent paid minus 10% of salary
  • 50% of salary (metro cities) or 40% (non-metro)
Conditions:
  • Must be paying rent
  • Rent receipts required
  • PAN of landlord if rent exceeds ₹1 lakh per annum

2. Leave Travel Allowance (LTA)

Exemption Available:

  • Travel expenses for self and family
  • Maximum 2 trips in a block of 4 years
  • Only travel cost (not accommodation/food)
Conditions:
  • Must actually travel
  • Bills and tickets required
  • Family includes spouse, children, dependent parents/siblings

3. Medical Allowance

Exemption:

  • Up to ₹15,000 per annum (standard deduction)
  • Medical reimbursement for self and family
Conditions:
  • Bills required for reimbursement
  • Subject to employer's policy

4. Transport Allowance

Exemption:

  • Up to ₹1,600 per month (₹19,200 per annum)
  • For commuting between residence and place of work

5. Children Education Allowance

Exemption:

  • Up to ₹100 per month per child (maximum 2 children)
  • Maximum ₹2,400 per annum

6. Hostel Expenditure Allowance

Exemption:

  • Up to ₹300 per month per child (maximum 2 children)
  • Maximum ₹7,200 per annum

Deductions under Chapter VI-A

Section 80C - Investments and Payments

Deduction: Up to ₹1.5 lakh per annum

Eligible Investments/Payments:

  • Life Insurance Premium
  • ELSS Mutual Funds
  • PPF (Public Provident Fund)
  • NSC (National Savings Certificate)
  • Tax-saving Fixed Deposits (5-year)
  • Principal repayment of home loan
  • Tuition fees for children
  • Sukanya Samriddhi Yojana
  • Senior Citizens Savings Scheme

Section 80CCD(1) - NPS Contribution (Self)

Deduction: Up to ₹1.5 lakh (within Section 80C limit)

Section 80CCD(1B) - Additional NPS Contribution

Deduction: Up to ₹50,000 (over and above ₹1.5 lakh)

Section 80CCD(2) - NPS Contribution (Employer)

Deduction: Up to 10% of salary (14% for government employees)

  • Not subject to ₹1.5 lakh limit
  • Available in both old and new tax regimes

Section 80D - Health Insurance Premium

Deduction:

  • Self, spouse, and children: Up to ₹25,000
  • Parents (below 60 years): Up to ₹25,000
  • Parents (60+ years): Up to ₹50,000
  • Total Maximum: ₹1 lakh (if parents are senior citizens)

Section 80DD - Medical Treatment of Dependent Disabled

Deduction:

  • 40-80% disability: ₹75,000
  • 80%+ disability: ₹1,25,000

Section 80DDB - Medical Treatment of Specified Diseases

Deduction:

  • Self/dependent (below 60 years): Up to ₹40,000
  • Self/dependent (60+ years): Up to ₹1 lakh

Section 80E - Interest on Education Loan

Deduction: Full interest amount (no limit)

  • Available for 8 years from start of repayment
  • Loan must be for higher education (self, spouse, children)

Section 80EE - Interest on Home Loan (First-time Home Buyers)

Deduction: Up to ₹50,000 (over and above Section 24(b))

  • Loan sanctioned between 1.4.2016 to 31.3.2017
  • Property value not exceeding ₹50 lakh
  • Loan amount not exceeding ₹35 lakh

Section 80EEA - Interest on Home Loan (Affordable Housing)

Deduction: Up to ₹1.5 lakh (over and above Section 24(b))

  • Loan sanctioned between 1.4.2019 to 31.3.2022
  • Property value not exceeding ₹45 lakh
  • First-time home buyer

Section 80EEB - Interest on Electric Vehicle Loan

Deduction: Up to ₹1.5 lakh

  • Loan sanctioned between 1.4.2019 to 31.3.2023
  • For purchase of electric vehicle

Section 80G - Donations

Deduction: 50% or 100% of donation amount

  • Various charitable institutions eligible
  • No limit for certain donations (100% deduction)

Section 80GG - Rent Paid (No HRA)

Deduction: Lower of:

  • ₹60,000 per annum
  • 25% of total income
  • Rent paid minus 10% of total income
Conditions:
  • Not receiving HRA
  • Not owning residential property
  • Rent receipts required

Section 80GGA - Donations for Scientific Research

Deduction: 100% of donation amount

  • To approved scientific research associations

Section 80GGC - Donations to Political Parties

Deduction: 100% of donation amount

  • Only cash donations eligible
  • Subject to conditions

Section 80TTA - Interest on Savings Account

Deduction: Up to ₹10,000

  • Interest from savings bank account
  • Not applicable to fixed deposits

Section 80TTB - Interest Income (Senior Citizens)

Deduction: Up to ₹50,000

  • For senior citizens (60+ years)
  • Interest from deposits (FD, RD, savings account)

Section 80U - Disability (Self)

Deduction:

  • 40-80% disability: ₹75,000
  • 80%+ disability: ₹1,25,000

Income from House Property Deductions

Section 24(a) - Standard Deduction

Deduction: 30% of Net Annual Value (NAV)

  • Available on let-out property
  • Not available on self-occupied property

Section 24(b) - Interest on Home Loan

Deduction:

  • Self-occupied: Up to ₹2 lakh
  • Let-out: Full interest (no limit)
  • Under construction: Interest deduction in 5 equal installments

Standard Deduction

Deduction: ₹50,000 per annum

  • Available to all salaried individuals
  • Replaces transport and medical allowances
  • Available in both old and new tax regimes

Tax Planning Tips

1. Plan Early: Start tax planning at the beginning of the year 2. Maximize Section 80C: Utilize full ₹1.5 lakh limit 3. Health Insurance: Avail Section 80D benefits 4. Home Loan: Claim interest and principal deductions 5. NPS: Consider additional ₹50,000 deduction 6. Documentation: Maintain all bills and receipts 7. Review: Review deductions annually

Key Takeaways

1. Exemptions: Reduce gross salary (HRA, LTA, etc.) 2. Deductions: Reduce taxable income (Section 80C, 80D, etc.) 3. Limits: Be aware of deduction limits 4. Documentation: Maintain proper records 5. Planning: Plan investments to maximize benefits

Conclusion

Understanding and utilizing deductions and exemptions can significantly reduce tax liability for salaried individuals. Proper planning and documentation are essential to maximize tax savings. It's important to understand the difference between exemptions (reduce gross salary) and deductions (reduce taxable income).

For personalized guidance on tax planning, deductions, and exemptions, consult with a qualified Chartered Accountant who can help you optimize your tax savings based on your specific circumstances.