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FM Nirmala Sitaraman has presented her maiden budget on 5th July.

Read the highlights here.

Salaried employees form the major chunk of the overall taxpayers in the country and the contribution they make to the tax collection is quite significant. Income tax deductions offer a gamut of opportunities for saving tax for the salaried class. With the help of these deductions and exemptions and, one could reduce his/her tax substantially.

In this article, we try to list some of the major deductions and allowances, available to the salaried persons, using which one can reduce their income tax liability.

  1. Exemption of House Rent Allowance
  2. Standard Deduction
  3. Leave Travel Allowance (LTA)
  4. Section 80C, 80CCC and 80CCD(1)
  5. Medical Insurance Deduction (Section 80D)
  6. Interest on Home Loan (Section 80C and Section 24)
  7. Deduction for Loan for Higher Studies (Section 80E)
  8. Deduction for Donations (Section 80G)
  9. Deduction on Savings Account Interest (Section 80TTA)
  10. Additional Deduction for Interest on Home Loan (Section 80EE) (Section 80TTA)
Middle class tax payers & Budget 2019

1. Exemption of House Rent Allowance

A 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.

If you couldn’t submit rent receipts to your employer as proof to claim HRA, you can still claim the exemption while filing your income tax return. So, please keep rent receipts and evidence of any payment made towards rent. You may claim the least of the following as HRA exemption.

a. Total HRA received from your employer

b. Rent paid less 10% of (Basic salary +DA)

c. 40% of salary (Basic+DA) for non-metros and 50% of salary (Basic+DA) for metros

Read more about how to claim HRA exemption.

2. Standard Deduction

  The Indian Finance Minister, while presenting the Union Budget 2018, announced a standard deduction amounting to Rs. 40,000 for salaried employees. This was in the place of the transport allowance (Rs. 19,200) and medical reimbursement (Rs. 15,000). As a result, salaried people could avail an additional income tax exemption of Rs. 5,800 in FY 2018-19. The limit of Rs. 40,000 has been increased to Rs. 50,000 in the Interim Budget 2019.

Read more on Standard Deduction Did-You-Know income tax  

3. Leave Travel Allowance (LTA)

The income tax law also provides for an LTA exemption to salaried employees, restricted to travel expenses incurred during leaves by them. Please note that the exemption doesn’t include costs incurred for the entire trip such as shopping, food expenses, entertainment and leisure among others.

You can claim LTA twice 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 not the cost of international travel
  • The mode of such travel must be either railway, air travel, or public transport
  Read more about how to claim LTA

4. Section 80C, 80CCC and 80CCD(1)

Section 80C is the most extensively used option for saving income tax. Here, an individual or a HUF (Hindu Undivided Families) who invests or spends on stipulated tax-saving avenues can claim deduction up to Rs. 1.5 lakh for tax deduction. The Indian government too supports a few as the tax saving instruments (PPF, NPS etc.) to encourage individuals to save and invest towards retirement.

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. Some of such investments are given below which are eligible for an exemption under Section 80C, 80CCC and 80CCD(1) up to a maximum of Rs 1.5 lakh.

  • 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
Read more on these deductions.

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5. Medical Insurance Deduction (Section 80D)

Section 80D is a deduction you can claim on medical expenses. One could save tax on medical insurance premiums paid for the health of self, family and dependent parents. The limit for Section 80D deduction is Rs 25,000 for premiums paid for self/family.

For premiums paid for senior citizen parents, you can claim deductions of up to Rs 50,000. Additionally, health checkups to the extent of Rs 5,000 are also allowed and covered within the overall limit.

6. Interest on Home Loan (Section 80C and Section 24)

  Another key tax saving tool is the interest paid on home loans. Homeowners have the option to claim up to Rs. 2 lakh as a deduction for interest on home loan for self-occupied property. If the house property is let out, you can claim a deduction for the entire interest pertaining to such a home loan.

Please 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 lakh. In addition to the above, one can also claim the principal component of the housing loan repayment as a deduction under 80C up to a maximum limit of Rs 1.5 lakh.

Read more about deductions from house property

7. Deduction for Loan for Higher Studies (Section 80E)

Income Tax Act provides a deduction 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 his spouse or children.

One may begin claiming this deduction beginning from the year in which the loan starts getting repaid and up to the next seven years (i.e. total of 8 assessment years) or before repayment of the loan, whichever is earlier. Even a legal guardian could avail this income tax deduction.

Read more about deductions from Section 80E

8. Deduction for Donations (Section 80G)

Section 80G of the Income Tax Act, 1961 offers income tax deduction to an assessee, who makes donations to charitable organizations. This deduction varies based on the receiving organisation, which implies that one may avail deduction of 50% or 100% of the amount donated, with or without restriction.

Read more about Section 80G

9. Deduction on Savings Account Interest (Section 80TTA)

Section 80TTA of the Income Tax Act, 1961 offers a deduction of up to INR 10,000 on income earned from savings account interest. This exemption is available for Individuals and HUFs.

In case the income from bank interest is less than INR 10,000, the whole amount will be allowed as a deduction. However, in case the income from bank interest exceeds INR 10,000, the amount after that would be taxable.

Read more about deduction from Section 80TTA

10. Additional Deduction for Interest on Home Loan (Section 80EE)

Section 80EE allows homeowners to claim an additional deduction of Rs.50,000 (Section 24) for interest component of the home loan EMI.

Provided, the loan must not be for more than Rs 35,00,000 and the value of the property must not be more than Rs 50,00,000. Furthermore, the individual must not have any other property registered under his name at the time the loan is sanctioned.

Read more about deduction from Section 80EE

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