India Tax Deduction

There are various India Tax Deductions or tax exemptions provided by the Indian Income Tax Act. The tax deductions help to deduct an amount from the taxable income and help to save tax. Each year, one can save thousands of rupees in income tax through income tax exemptions.

The Central Board for Direct Taxes (CBDT) governs the Indian Income Tax department. The department is also part of the Department of Revenue which is managed under the Indian Revenue Service (IRS) under the Ministry of Finance, Govt. of India.

Income taxes are imposed by the government of India on taxable income of Hindu Undivided Families (HUFs), companies, individuals, firms, co-operative societies and trusts (which are identified as a body of Individuals and Association of Persons) and any other artificial person. There are separate levy of taxes on each persons which are governed by the Indian Income Tax Act, 1961.

Some of the income tax deductions and tax exemption limits for the financial year 2008-09 are given below -

Income Tax deduction - Section 80C of the Indian Income Tax Act

Section 80C is one of the most common income tax deductions. This is quite popular as it encourages monthly savings from income. If someone has a taxable income in the highest tax bracket, the deductions under this section can help one reduce the taxable income by 1 lakh rupees. This deduction can be availed if one has invested money in Life Insurance premium, Provident Funds, mutual fund investments in ELSS (Equity Linked Savings scheme), bank deposits (more than 5 years), National Saving Certificate (NSC), tuition fees, principal part of EMI on housing loan, ULIPS (Unit Linked Insurance Plans). The maximum tax deduction or tax exemption limit is ` 1, 00,000.

Income Tax deduction - Section 80D of the Indian Income Tax Act

This section of India Tax Deduction is helpful if there is no coverage of health and medical expenses. It is better if one gets health and medical insurance for oneself, spouse, dependent parents and dependent children. Through this one can claim deduction till ` 15000/- per annum for the insurance premium. The limit for senior citizens is Rs 20,000.

Income Tax deduction - Section 80G of the Indian Income Tax Act

According to Section 80G in the India tax deduction rules, donations to National Children Foundation, University or educational institution of national importance, Prime Minister's Relief Fund, charitable institutions etc are deductible from the taxable income. Income tax deduction for 50% of the donated amount is eligible for other donations. The maximum tax deduction or tax exemption limit is 100% for various funds and 50% for other donations.

Some More Deductions that can be availed:

1. Pay lower if someone is ill If you have a dependent who suffers from any of the ailments specified under Section 80DDB, the Income tax Act allows you to claim an annual deduction of Rs 40,000. The deduction is higher at Rs 60,000 if the patient is a senior citizen.

Conditions:The IT Act has defined certain diseases to claim this deduction, which include neurological diseases, malignant cancers, full-blown AIDS, chronic kidney failure and haematological disorders.

Dependents can include spouse, children, parents and siblings. However, there are a few conditions.

The patient should be wholly or mainly dependent on the taxpayer and should not have separately claimed deduction for the disability. If the amount spent is reimbursed by the employer or an insurance company, there is no deduction.

2. Political affiliations can be some times beneficial
Yes! Of-course you can you lower your tax if you have political affiliations. Amount contributed to a recognized political party can be claimed as a deduction without any ceiling under Section 80GGC (80GGB for corporates). The donation can also be made to the electoral trust which works for the purpose of conducting elections. There is a ceiling to the deduction a taxpayer can claim in a year.

Condition: Only cash donations are taken into account. Food, clothes and medicines do not qualify. Under Section 80G, donations to charitable organizations get deduction ranging from 50% to 100%. It is good to know how much deduction you can claim before you sign a cheque. The quantum of deduction is limited to 10% of the gross total income of the donor.

3. Set off Long term gains by short term capital losses
According to Income Tax Act if you have made any long-term capital gains from sale of property, gold or debt funds, you can set them off against short-term capital losses made on stocks and bring down your tax liability. This can be especially useful for someone who has booked profits on gold ETFs and physical gold for the year.

4. Use education loan to lower your tax liabilities
The interest paid on an education loan is fully deductible from taxable income under Section 80E. This deduction now includes loans taken for vocational courses. Say, if a parent or legal guardian takes the loan, he can claim deduction for the interest paid for upto 8 successive years, starting with the year in which interest is first paid.

Condition: Loans taken for siblings and other relatives and from employers or individuals are not qualifying for deduction.

5. Disabilities can lower your tax bracket
If a taxpayer suffers from a disability, he can claim deduction of Rs 75,000 under Sec 80U. If he has a disabled dependent, he can claim the deduction under Sec 80DD. Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness and deduction is available only if the impairment is at least 40%. If the disability is severe (80% or above), the deduction is Rs 1 lakh a year. The dependent could include the taxpayer's spouse, children, parents and even siblings.

Condition: Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that the taxpayer may spend on himself or on the disabled dependent. However, the disabled person should be wholly or mainly dependent on the taxpayer for maintenance, and should not have claimed deduction for the disability under Section 80U separately.

6. Take unlimited deduction for your second home loan
When it comes to buying a second house, the taxman can be very encouraging. Under Section 24b, one can claim deduction of up to Rs 1.5 lakh a lakh for interest paid on a home loan. But if the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as a deduction. Also if you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or a deemed income is charged to tax.

Last Updated on 12/7/2011

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