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The plus point of deductions

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.

Income Tax Act

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:
>> Investments you have made
>> Expenses you have incurred
>> Liabilities 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:
>> Life Insurance Premium/ULIP 80C
>> Provident funds (VPF, PF, PPF) 80C
>> Specified Mutual Funds (ELSS) 80C
>> National Saving Certificates (NSC) 80C
>> Pension Funds 80CCC
>> Specified Bank Deposits 80C
>> Senior Citizen Saving Scheme 80C
>> Post office time Deposit 80C
>> Contribution 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:
>> Stamp Duty and registration charges for new home 80C
>> Tuition fees paid for children 80C
>> Premium on Health Insurance 80D
>> Expenditure made on disabled dependents 80DD
>> Treatment of specified illnesses 80DDB
>> Deduction for mentally disabled 80U
>> Donations given 80G
>> Rent paid (if you get HRA) 10 (13A)
>> Rent 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:
>> Principal repayment on home loan 80C
>> Interest 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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