For calculating tax liability, you are required to add your Income under the head salary, house property, profits and gains from business or profession, capital gain and other sources. Total figure will give you gross total income.
Out of the gross total income, if you reduce all eligible tax deductions under section 80C to 80U based on your investments and expenses, you will arrive at total or taxable income. Your tax liability is calculated on taxable income.
If you reduce your taxable income with a proper tax planning, then your tax liability for the year can come down. For instance, for the financial year 2019-20, you can reduce your taxable income to Rs 5,00,000 or less.
Why to reduce taxable income to Rs 5 lakh or less
Interim budget has proposed to increase tax rebate limit under section 87A from earlier limit of Rs 2,500 to Rs 12,500.
Rebate of Rs 12,500 will be applicable only when taxable income of the financial year 2019-20 is Rs 5,00,000 or less.
This means, if your taxable income is higher than Rs 5,00,000, then Rs 12,500 tax rebate will not be applicable.
For instance, if your taxable income is Rs 6,00,000, then rebate under section 87A is not applicable.
If your gross total income is close to Rs 5,00,000, then you can take benefits of all eligible deductions to reduce it to Rs 5 lakh. Or else you will lose rebate of Rs 12,500.
Below in this article, you will find list of tax deductions and benefits than can reduce your taxable income to Rs 5,00,000 or less.
Claim house rent allowance up to your eligibility
If you are receiving house rent allowance from your employer and also stay in a rented accommodation, then you can claim HRA exemption based on your eligibility.
HRA exemption as calculated will be reduced from your actual house rent allowance received from employer to find out taxable HRA.
If your employer has given you flexibility to restructure your salary, then you can structure your HRA in such a way that you will be getting maximum exemption possible.
Please remember, you need to submit certified true copy of your rent receipts and agreement as tax proof for claiming HRA exemption towards the end of the year. You need to speak to your employer as they would have fixed a deadline for submission of tax proofs.
If you are not a Salaried individual, then you can take full benefit of section 80GG to claim tax deduction for payment of rent.
Maximum of following will be exempted from your actual HRA received, balance will be taxable:
- Actual HRA received.
- 40% of salary if you are living in non metro cities or else 50%.
- Excess of rent paid over 10% of salary.
Salary for this purpose is considered as basic plus dearness allowance (if it forms part of retirement benefits) plus commission received on the basis of sales turnover.
Standard deduction on salary
Tax benefits from transport allowance and medical reimbursement were available up to financial year 2017-18 (AY 2018-19).
However, government has introduced standard deduction of Rs 40,000 for the financial year 2018-19 (AY 2019-20) to replace the tax benefits from transport allowance and medical reimbursement.
This means for financial year 2018-19, you can claim standard deduction of Rs 40,000 from income under the head salary.
Due to this deduction, your gross total income and taxable income will also reduce by Rs 40,000.
To claim standard deduction of Rs 40,000, you are not required to submit any bill to employer or government.
Our interim budget 2019, has proposed to increase this limit further to Rs 50,000. This means, for financial year, 2019-20 (AY 2020-21), you can claim Rs 50,000 as standard deduction from income under the head salary.
Tax deduction under section 80C
Section 80C is the favourite section for individuals and HUF.
As per section 80C, an individual and HUF can claim up to Rs 1,50,000 tax deduction by investing in certain specified investments.
Based on your eligibility and investments, you can reduce your taxable income by Rs 1,50,000.
Here is the list of investment options allowed as tax deduction under section 80C:
- Life insurance
- Public provident fund or PPF
- Sukanya samriddhi yojana
- 5 years fixed deposits
- National saving certificate
- Employee provident fund or EPF
Apart from above investments, certain expenses like amount spent towards tuition fee, home loan can also be claimed as tax deduction within the limit specified above.
Please remember, Rs 1,50,000 is allowed cumulatively for investing under section 80C, 80CCC and 80CCD(1).
Investment in national pension scheme or NPS
National pension scheme or NPS is a popular investment option for an individual looking for a retirement benefit after the age of 60.
Investing in national pension scheme will give you an additional tax deduction of Rs 50,000 under section 80CCD(1B).
If you have invested Rs 1,50,000 in any or all specified investments under section 80C in addition to Rs 50,000 in national pension scheme, then you can reduce your taxable income by Rs 2,00,000.
Health insurance premium paid for yourself, spouse, dependent children and parents can give you tax benefits under section 80D of income tax act, 1961.
If you have paid health insurance premium for yourself, spouse and dependent children, then up to Rs 25,000 can be claimed as tax deduction under Section 80D.
Additional deduction of Rs 25,000 can be claimed if mediclaim policy is paid for parents who are not senior citizens. If parents are senior citizen, then additional deduction can be claimed up to Rs 50,000.
Medical expenditure incurred for a disabled person
Medical expenditure incurred for a dependent disabled person is eligible for tax deduction under section 80DD of Income tax act, 1961. Dependent means the person should be wholly dependent on you for support.
You can claim deduction of Rs 75,000 if disability is 40% or more but less than 80%.
For more than 80% disability, you can claim tax deduction of Rs 1,25,000.
Section 80DD deduction is fixed, it doesn’t matter how much you have incurred for the dependent disabled person. However you can’t claim deduction under section 80DD if the disabled person has already claimed deduction under section 80U in his/her return of income.
Expenditure for medical treatment of specified diseases
Expenditure incurred for medical treatment of a specified diseases can be claimed as tax deduction under section 80DDB from your gross total income.
Section 80DDB deduction is available only when you have spent money during the financial year for medical treatment of yourself or your dependent for any specified diseases as specified in rule 11DD.
You can claim tax deduction up to a maximum limit of Rs 40,000. If the person for whom money has been spent is a senior citizen, then tax deduction can be claimed up to a maximum limit of Rs 1,00,000.
Interest paid on education loan
Interest paid on education loan is allowed for tax deduction under section 80E if the loan is taken for yourself, spouse and children.
Please remember, deduction under Section 80E is available to you from the year in which you started repaying the loan not from the year of disbursement.
Only interest portion is available as tax deduction. You can claim benefits of section 80E up to 8 assessment year or till the interest amount is paid, whichever is earlier.
Donation to approved charitable institutions and relief funds qualify for tax deduction under section 80G of income tax act,1961.
Based on your eligibility you can claim up to 50% or 100% of your donated amount as tax deduction.
You have to keep the receipt with you. Receipt should have your name, amount donated and all the details of the trust including PAN and registration number.
If your donation is more than Rs 2,000, then you have to donate it through a banking mode as cash donation in excess of Rs 2,000 is not allowed as tax deduction under section 80G.
Rent paid – not applicable to salaried person getting HRA
If you are not receiving house rent allowance or HRA but living in a rented house, then you can take benefits of section 80GG of income tax act 1961.
As per section 80G, if following conditions are satisfied, then you can claim deduction under section 80GG:
- You are not receiving HRA
- You, your spouse or minor child should not own a house in the city you are living
- If you own another house, then it should not be assessed as a self occupied house property.
If you fulfill conditions in section 80G, then lower of the following will be allowed as tax deduction:
- Rs 5000 per month
- 25% of your total income
- Rent paid in excess of 10% of your total income
Total income for calculating tax deduction 80GG eligibility is referring to income adjusted by reducing long term capital gains, short term capital gains and deduction allowed under section 80C to 80U except 80GG.
Fixed deduction to a disabled person – Section 80U
A disabled person can claim fixed deduction of Rs 75,000 if his disability is 40% or more but not more than 80%.
In case disability is more than 80%, then the fixed deduction under section 80U will be Rs 1,25,000.
Section 80DDB is applicable when your dependent is disabled and you have incurred medical expenses for him. Section 80U can be claimed by the disabled person himself.
If the disabled Person claimed section 80U deduction, then you can not claim section 80DD deduction for the same person.
Deduction for Interest on saving account – 80TTA
An individual and HUF is eligible to claim tax deduction under section 80TTA for the interest income from bank saving account.
You can claim up to Rs 10,000 as tax deduction under this section. This means interest on bank saving account or Rs 10,000 whichever is lower will be allowed as tax deduction.
You can also claim this deduction if interest is received from post office.
Please remember, you need to include interest income in your gross total income under the head other sources before claiming tax deduction under section 80TTA.
Before calculating your taxable income and tax liability, please check form 26AS to know if any TDS has already been deducted from your interest income. If deducted, then include it into your return.
Section 80TTB deduction for Interest on bank and post office deposits – Applicable to senior citizens
A resident senior citizen who is 60 years of age or more can claim tax deduction under section 80TTB up to a maximum limit of Rs 50,000.
This deduction is available on interest received from bank and post office saving account, fixed deposits, recurring deposits and post office schemes.
Claim loss from house property
Apart from above eligible tax deductions, you can take benefits of loss from house property by taking a housing loan.
Interest on housing loan can be shown as a loss if you are not given it for rent. In this way you can reduce your gross total income and taxable income.
Loss from house can also be calculated and submitted to your employer to reduce your tax deduction from salary.
You can do a tax planning at the beginning of the year to reduce your taxable income. For this, you can consult a tax expert or finance Professional.
Based on your eligibility and income, they can suggest you different plans to reduce your taxable income.
We suggest you to start your tax planning from the beginning of the financial year so that the plan to reduce your taxable income and tax liability will be in your mind throughout the year.