A better understanding of the provisions of income tax deductions can ensure great savings
A lot of information on the subject of deductions is available online, but for many of us the information may be difficult to understand, and remembering it, is next to impossible. Hence I have tried to classify and highlight these deductions in a perspective that will not only help us understand them better, but to a certain degree, also help us remember them. For the sake of simplicity, I am not detailing all the conditions and scenarios, but will make sure that you get the point and know that there is a possibility of deduction.
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Firstly, what are deductions? These are the amounts that can be legally deducted from your total income, according to various sections of the Income Tax Act, 1961, so that your taxable income is reduced and you have to pay lesser tax. The amount of money saved will depend on the tax bracket you belong to. For eg, if you claim Rs 10,000 in deductions, and are in the tax bracket of 30 per cent, then you will save the Rs 3,000 and if you are in 20 per cent tax bracket, you will save the Rs 2,000 which you would have otherwise paid as tax.
Now I am classifying the deductions on three different cash flows that you experience as an individual. In simpler terms, you can claim income tax deduction if you are paying in the following situations:
>>u00a0Investments you have made
>>u00a0Expenses you have incurred
>>u00a0Liabilities you have repaid
For most of us, benefits of deductions are only restricted to the investment made through insurance policies or public provident funds (PPF). But there are many more deduction options available for the other money that goes out of your pocket. So let us look at these various outflows in detail and list them out under the above heads:
Investments made
This is the most popular kind of deduction we know. Below are the various kinds of investments you have made that can help you in claiming deductions, along with the sections of the Income Tax Act, 1961, (highlighted in bold) under which they qualify:
>>u00a0Life Insurance Premium/ULIP 80C
>>u00a0Provident funds (VPF, PF, PPF) 80C
>>u00a0Specified Mutual Funds (ELSS) 80C
>>u00a0National Saving Certificates (NSC) 80C
>>u00a0Pension Funds 80CCC
>>u00a0Specified Bank Deposits 80C
>>u00a0Senior Citizen Saving Scheme 80C
>>u00a0Post office time Deposit 80C
>>u00a0Contribution on Pension Scheme 80CCD
Expenses incurred
It is valuable to know the situations under which you can actually claim deductions for money you have spent, and the sections of the Income Tax Act they fall under:
>>u00a0Stamp Duty and registration charges for new home 80C
>>u00a0Tuition fees paid for children 80C
>>u00a0Premium on Health Insurance 80D
>>u00a0Expenditure made on disabled dependents 80DD
>>u00a0Treatment of specified illnesses 80DDB
>>u00a0Deduction for mentally disabled 80U
>>u00a0Donations given 80G
>>u00a0Rent paid (if you get HRA) 10 (13A)
>>u00a0Rent paid (if you don't get HRA) 80GG
Liabilities repaid
Repaying your loan is a good thing, and the government rewards you for doing that in certain cases:
>>u00a0Principal repayment on home loan 80C
>>u00a0Interest payment on home loan 24
>> Interest paid on education loan 80E
Apart from the above listed provisions, there is one deduction possible where there is no outflow but actually an income. From April 01, 2012, under section 80TTA, interest of up to R10,000 received on your savings account will be non-taxable.
Note that the above information is only an indicative list and does not give the complete terms and conditions of claiming a deduction. It is advisable to consult your tax advisor before taking any action. Also note that benefits under section 10 are technically termed as exemptions and not deductions.
Saurabh Mittal is an investment advisor with Circle Wealth Advisors. Readers are invited to read about related issues on saurabhmittalblog. wordpress.com/ or contact directly at saurabh@cwa.co.in
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