For any government, taxes provide funds for financing public goods and services. In India, we pay income tax directly to the government based on our income or profit. Besides the primary target of economic development, income tax also serves a few non-revenue objectives.

These are,

a. reducing the inequalities of income and wealth (the rich are taxed at a higher rate)

b. controlling cyclical fluctuations of the economy (reducing taxes during depressed state and raising them in boom time)

c. ensuring price stability in the short term by increasing the taxes to reduce private spending.

Income tax in India has different categories like personal, self-employed, corporate, export earnings, or foreign income. Our focus in this article is on the personal tax category. The purpose is to provide a general perspective on deductions, most importantly, the uncommon or the lesser-known ones, as a key to tax saving.

Permitted deductions (in the income tax act) offer scope for tax saving. Utilising the full provision of the allowable income tax deductions enables an individual to reduce his / her taxable income and, therefore, save on taxes payable.

The income tax rules are specific and, over the years, have undergone several reforms to become more straightforward and user-friendly. Many of the ambiguities in the language of these rules have been corrected, making interpretation easy and uniform. The process of filing your tax return is relatively hassle-free now.

We now look at some of the deductions which can facilitate better tax saving.

Types of tax deductions

1. Standard deduction
2. Allowable deductions
3. Uncommon deductions

1. Standard deduction

Introduced in the budget of 2018, the new standard deduction for the salaried class replaced the earlier provisions of transport allowance, medical reimbursement, and the prevailing standard deduction.

The current rule provides a benefit of Rs.50000 (increased in 2019 from the earlier Rs. 40000) and can be applied as a flat deduction on your gross salary.

2. Allowable deductions

Expenditures and investments in specific schemes are eligible for exemption. A maximum limit of Rs. 150000 is applicable for utilising the nominated instruments. This scheme is mentioned under section 80 C of the Income-tax act and is commonly referred to as 80C deductions. Some of the sanctioned instruments are Provident fund contributions, LIC premiums, National pension fund subscriptions, principal payment of home loans,  National savings certificate, investments in specified tax saving bank deposits and equity-linked saving schemes(ELSS), Public provident fund (PPF), tuition fees for children and few more.

3. Uncommon deductions

Besides the last two categories, some more exemptions are available, which are lesser-known and subject to fulfilling several conditions.

1. NPS 80 CCD deduction - An amount of Rs. Fifty thousand deposited to the national pension fund can be claimed as an additional deduction. This benefit is over and above the allowable 80 C benefit (Rs 150000), including NPS contribution, if any.

2. Interest on a savings account - A maximum deduction of Rs.10000 from the total gross income is allowed against interest income earned on your savings account with a bank, post-office, or a cooperative society.

You should also include the total interest earned in a financial year from all savings accounts sources (if you have more than one bank account) under "other account” in your gross income.

This deduction comes under section 80 TTA of the income tax act. However, you may note that the interest received from bank fixed deposits are not covered under this provision and cannot be clubbed with interest from savings account/s.

Senior citizens (60+) are not eligible under this scheme (80 TTA) since the IT act provides for them separately. However, seniors can claim a maximum deduction of Rs.50000 (from their gross income) against interest earned from savings and fixed deposits, and senior citizen accounts.  This benefit for senior citizens comes under section  80 TTB.

3. Premium paid for medical insurance - An individual taxpayer can claim a deduction of Rs.25000 against the medical insurance premium paid for self, spouse, and dependent children. You can avail of an additional deduction of Rs.25000  for the premium paid for parents. If both parents of the individual taxpayer are above the age of 60 years, the limit further goes up to Rs. 50000.

If both the individual taxpayer and his /her parents are senior citizens, the maximum deduction can be Rs.100000 under the provision of this section.

4. Tax deduction for disabilities - For the individual taxpayer suffering from specified physical disabilities, including blindness and mental retardation, a deduction of Rs. 75000 is  allowable for moderate disability(40% or more) and Rs.1,25,000  in case of severe disability (80% +).

The disability has to be certified by authorised medical doctors at government hospitals.

5. Deduction on medical expenditure - There are provisions under section 80 DD and 80 DDB that can help you save tax against medical expenses incurred to treat prescribed diseases, including disability for self and dependents.

A deduction of Rs.40000 is permitted under this scheme. However, in case the expenses are incurred for persons above the age of 60, then the limit for the taxpayer's claim increases to Rs.1 lakh.

The conditions are, a)  prescriptions and other expense details are certified by an authorised medical practitioner of a government hospital; b) if any insurance reimbursement is received against the cost incurred for the same treatment, it will reduce your allowable limit to that extent.

Few more lesser-known deductions

We now take a look at some more uncommon allowances which may help save tax.

Tax benefit on home loan interest paid – Besides the tax benefit available on principal repayment of home loan under section 80 C (of the IT act), you can also avail concession up to a ceiling of Rs.2 Lakhs on the loan interest paid during a financial year.

This benefit, however, is applicable only if the property is self-occupied.  If you are paying the interest on a loan for an under-construction property, the concession will be applicable only after you get possession of the property. That too (possession) must happen within five years.

An associated scheme of taking a loan under the affordable housing segment defined in the income tax act for FY 2020-21 can give you an additional rebate up to Rs.1.5 Lakhs on the interest paid. However, specific conditions apply for availing this additional allowable deduction on home loan interest paid, over and above the benefits under section24 (discussed earlier).

Deduction on rent paid- If you are salaried or self-employed and have not received any house rent allowance (HRA) during the financial year you claim the benefit, you can avail certain facilities under section 80 GG on fulfilling other specific criteria.

Donations – Several categories of donations are specified in section 80G of the IT act. Benefits ranging from 50 to 100 % are available for the contribution in these identified funds.

Conclusion

The method of filing an income tax return goes through a systematic simplification process periodically. Now, most of us only need to fill out a structured form for submitting a return. But that’s the general scenario, and if you wish to maximise your tax savings, you need to unfold the various layers of deduction information to locate the ones that apply in your case.

We will achieve our purpose if you find this article helpful in learning about some of the lesser utilised schemes so that you may optimise your income tax deductions, maximise your tax savings and minimise your worries!

Also Read:

1) Income Tax Return: All you need to know about ITR
2) How to Start Your Own Income Tax Business?
3) How to prepare GSTR-4 annual return for composition taxpayers using offline tools?
4) What Are The Tax Deductions for Joint Property Owners?

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FAQs

Q. Why have some of the provisions been described as uncommon? Are they not applicable to all?

Ans. Many individuals file a simple return based on the template provided by the department of income tax.

There are some concessions that many people do not avail for lack of awareness. The purpose of highlighting some of these available benefits is to make you aware of such schemes so that you can find out the details and check for applicability in your case.

Q. Is standard deduction applicable for everyone?

Ans. The standard deduction applies only to individual salaried taxpayers and pensioners irrespective of age. However, an individual who was a non-resident (in India) for part of the financial year and individuals filing their return for less than 12 months due to a change in accounting year are not eligible.

Q. What are the current income tax slabs?

Ans. You can refer to the website of the department or any current tax law sites.