1. Exemption of House Rent AllowanceA salaried individual having a rented accommodation can get the benefit of HRA (House Rent Allowance). This could be totally or partially exempted from income tax. However, if you aren’t living in any rented accommodation and still continue to receive HRA, it will be taxable. Also, it’s important to note that if one couldn’t submit his/her rent receipts to their employer as proofs to claim HRA, one could still claim the exemption while filing the income tax return. So, please keep rent receipts and evidence of any payment made towards rent. The least of the following is allowed as the HRA exemption to a salaried employee:
- Total HRA received from your employer
- Rent paid less 10 percent of salary
- 40 percent of salary (Basic+DA) for non-metros and 50 percent of salary (Basic+DA) for metros
2. Standard DeductionThe Indian Finance Minister during his speech while presenting the Union Budget 2018, announced a standard deduction amounting to Rs 40,000 for salaried employees. This has replaced the existing transport allowance of Rs 19,200, and medical reimbursement of Rs 15,000. As a result, salaried people can avail an additional income tax exemption of Rs 5800 with effect from FY 2018-19. Read more on Standard Deduction
3. Leave Travel Allowance (LTA)The income tax law also provides for an LTA exemption to salaried employees, restricted to travel expenses incurred by such employee. It is important to note here that the exemption doesn’t include costs incurred for entire trip such as shopping, food expenses, entertainment and leisure among others. LTA is allowable for two travels in a block of four years. In case an individual doesn’t use this exemption within a block, he/she could carry the same to the next block. Below are the restrictions which are applicable to LTA:
- LTA only covers domestic travel and it doesn’t cover the cost of international travel
- The mode of such travel must be either railway, air travel, or public transport
4. Section 80C, 80CCC and 80CCD(1)Section 80C is the most extensively used option for saving income tax. According to this section, an individual or an HUF (Hindu Undivided Families), who invests or spends on stipulated avenues, can claim deduction up to INR 1.5 lakhs. Expenditures/investment u/s 80C isn’t allowed as a deduction from income arising due to capital gains. It means that if the income of an individual comprises of capital gains alone then Section 80C cannot be used for saving tax. Deductions under Section 80C of the Income Tax Act, 1961 are offered for the investments made in a range of instruments. Some of these instruments are more well-known than the others due to various reasons. The Indian government too supports a few as the tax saving instruments for encouraging individuals to save and invest towards retirement. Some of such investments are given below which are eligible for an exemption under Section 80C, 80CCC and 80CCD(1) upto a maximum of Rs 1.5 lakhs
- Life insurance premium
- Equity Linked Savings Scheme (ELSS)
- Employee Provident Fund (EPF)
- Annuity/ Pension Schemes
- Principal payment on home loans
- Tuition fees for children
- Contribution to PPF Account
- Sukanya Samriddhi Account
- NSC (National Saving Certificate)
- Fixed Deposit (Tax Savings)
- Post office time deposits
- National Pension Scheme
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5. Medical Insurance Deduction (Section 80D)This is a deduction, provided for medical expenses. Deduction under this Section is available over and above the deduction under 80C. One could save tax on medical insurance premiums paid for the health for self, family and dependent parents. These expenses could be deducted from overall taxable income. The limit for this deduction is Rs 25,000 for premiums paid for self/family. For premiums paid for parents who are senior citizens, one can claim a deduction upto Rs 30,000. This limit has been raised in Budget 2018 from Rs 30,000 to Rs 50,000. i.e. effective 1 April 2018, one can claim upto RS 50,000 as a deduction for premium paid for senior citizen parents. Additionally, health checkups to the extent of Rs 5,000 are also allowed and are covered within the overall limit of Rs 25,000 and Rs 50,000 as the case may be.
6. Interest on home Loan (Section 80C and Section 24)Another key tax saving tool is the interest paid on the home loans. Homeowners have the option to claim up to INR 2 lakhs as a deduction for interest on home loan for a self-occupied property. If the house property is let out, the deduction is allowed for the entire interest pertaining to such home loan. However, here it becomes essential to note that from FY 2017-18, the loss from house property that can be set off against other sources of income has been restricted to Rs 2 lakhs.
In addition to the above, one can also claim the principal component of the housing loan repayment as a deduction under 80C upto a maximum limit of Rs 1.5 lakhs.
Read more about deductions from house property
7. Deduction for Loan for Higher Studies (Section 80E)Income Tax Act provides exemptions for interest on education loans. The significant conditions attached to claiming such deduction are that the loan should have been taken from a bank or a financial institution for pursuing higher studies (in India or abroad) by the individual himself or spouse of his children. Further, one may begin claiming this deduction beginning from the year in which the loan starts getting repaid and upto the next seven years or before repayment of loan, whichever is earlier. Every legal guardian could avail this income tax exemption.
Read more about deductions from Section 80E