Sole proprietor business means a business entity which is run by one individual and for which there is no difference between the owner and business. Sole proprietor is also called a self employed person or an individual.
IT act offers various tax deductions for a sole proprietor or self employed person. If you are a self employed person or sole proprietor then you can take benefit of all these tax deductions to pay less tax.
These tax deductions are allowed after deriving your gross total income. Below is a list of tax deductions available to sole proprietor or self employed person in India.
Tax deduction for various investments and expenses during the year
Out of the list of deductions listed below, 80C is a famous section. Section 80C has a list of expenses and investments which can be claimed as income tax deduction up to a maximum limit of 150000 rupees.
You can avail deductions for investing in LIC, PPF, mutual fund, 5 yrs fixed deposit or even for paying tuition fee for your children.
For a detail list of investments and expenses allowed under section 80C please refer our article on all about section 80C.
Pension Fund Deduction
This section is introduced to claim tax deductions for investing into pension fund. Section 80CCC is for payment of premium amount towards an annuity plan of LIC or any other insurer for receiving pension from the fund.
From AY 2012-2013 onwards, total deduction under section 80C, 80CCC and 80CCD cannot exceed the maximum limit of 150000 rupees. So whatever amount you have invested will be added and then based on this restriction tax deduction should be claimed.
Tax Deduction for Medical premium
Medical insurance premium paid for you, your spouse or children will be eligible for tax deduction under section 80D. The maximum limit of tax deduction is 15000 rupees. Additional deduction of Rs. 15000 for payment of premium towards medical insurance for parents and 5000 for having insurance premium for senior citizen is allowed. Additional deduction means in addition to the standard deduction of 15000 rupees, you can claim it extra. You can get detail provision of section 80D here.
Finance Budget 2015 has enhanced the tax deduction limit of Section 80D. Read our article on section 80D to know the Detail Provision for tax deductions for medical premium.
Tax Deduction for Medical expenses for handicapped dependent
Medical expense for treatment of handicapped dependent can be claimed as tax deduction under section 80DD of IT act. You can also claim tax deduction for amount paid to LIC or other insurer for the benefit of handicapped dependent.
Fixed tax deduction of 50000 rupees can be claimed under this section and can further be extended to 100000 rupees if the handicapped dependent’s disability is 80% or more than that.
Finance Budget 2015 has enhanced the tax deduction limit of Section 80Dd. For more detail please read our article on the Provisions of section 80DD – Medical expenses for handicapped dependent
Tax deduction for medical treatment of specified diseases
Expenses for medical treatment of specified diseases can be claimed as tax deduction under section 80DDB of IT act. To claim tax deduction, the disease must be specified under rule 11DD of IT rules.
If it is a specified disease and you have incurred medical expenses for it then you are eligible for tax deduction up to a maximum amount of 40000 rupees. Tax deduction can go up to 60000 rupees if the assessee for whom medical expenses are incurred is a senior citizen.
Tax deductions for education loan
Section 80E allow you to claim tax deduction for education loan taken from any bank or financial institution for higher studies. Tax deduction under section 80E can be claimed for the loan taken for higher studies of your own or spouse or any of the children for whom you are the legal guardian.
Entire interest amount paid for the education loan will be allowed as tax deduction.
Tax deduction for loan on housing property
From financial year 2013-2014 onwards, you can claim tax deduction of 100000 rupees if the housing loan is 2500000 rupees and the value for which housing loan has been taken is 4000000 rupees. You can claim it under section 80EE of IT act.
Section 80EE benefits will be available only when you do not have any other residential house on the date of loan sanction.
Tax deductions for donations
Donations to various approved charitable institutions or funds are allowed as tax deduction under section 80G of IT act. You can claim tax deductions only when you have paid it during the year.
Tax deduction for rent paid
A self employed person or proprietor can claim income tax deduction of 2000 rupees per month for payment of monthly rent. To claim this benefit you, your spouse or your minor child should not have any residential house in India or abroad.
Tax deductions for interest on deposits in saving account
For the interest amount received from saving account, a tax deduction up to a maximum amount of 10000 rupees can be claimed under section 80TTA.
Tax deduction for specified diseases
Section 80U allow you to claim income tax deductions for specified diseases. If you as an individual have any disability then benefits of section 80U can be claimed.
Tax deductions of 50000 rupees can be claimed under section 80U. It can also be extended up to 100000 rupees if you have 80% or more disability. Please remember, it’s a fixed tax deduction and can be claimed even though you have not incurred anything towards your medical expenses.
Tax deduction limit has been increased in finance budget 2015. Please read our article Detail provisions for tax deductions on specified diseases to know more.
As a sole proprietor or self employed person, you are not required to submit any proof while filling your income tax return. However, we suggest you to keep these documents in a safe place as it will be required if any query comes from IT department.