Income Tax: List of sections under I-T Act that can maximise your tax savings

Updated: 30 Jan 2023, 08:19 AM IST
TL;DR.

  • Section 80C of the Income Tax Act allows tax deduction for various products. The maximum deduction allowed in a financial year is Rs. 1,50,000.

The Centre has granted income tax exemption to CERSAI (Photo: iStock)

Most of us follow comprehensive financial planning these days. It involves having an emergency fund, life insurance for bread earners, health insurance for all family members, a goal-based approach for financial goals, estate planning, etc. While planning for all of the above, we need to make sure the financial products that we choose are tax-efficient.

To do that, we need to understand the tax benefits that are available for various financial products under various sections of the Income Tax Act. Let us look at them.

Section 80C

Section 80C of the Income Tax Act allows tax deduction for various products. The maximum deduction allowed in a financial year is Rs. 1,50,000. Some of these products include:

a) The life insurance premium paid for self, spouse, and children

b) Premium payment towards a deferred annuity

c) Contribution to Employee Provident Fund (EPF)

d) Contribution to Public Provident Fund (PPF)

e) National Savings Certificate (NSC)

f) Equity Linked Savings Scheme (ELSS)

g) Tuition fees paid to any school, college, university or any other educational institution for the full-time education of two children

h) Principal repayment of a home loan

i) Stamp duty, registration fee, and other specified expenses incurred for the purchase of a house property

j) 5-year tax-saving fixed deposit with a bank or post office

k) Investment in Senior Citizen Savings Scheme (SCSS) with a bank or post office

l) Sukanya Samriddhi Account (SSA) Scheme

Section 80CCD (National Pension Scheme)

An individual can make a contribution to the National Pension Scheme (NPS) and get the following benefits:

a) Section 80CCD(1): An individual can contribute to the NPS and get a deduction from taxable income. A salaried employee can contribute 10 percent of their salary and other individuals can contribute 20 percent of their gross total income. The maximum deduction allowed in a financial year is the amount contributed or Rs. 1,50,000, whichever is lower.

b) Section 80CCD(1B): An individual can contribute Rs. 50,000 to the NPS and avail of a deduction from taxable income. This deduction is over and above the deduction of Rs. 1,50,000 allowed under Section 80CCD(1). Please note that an individual cannot avail of a deduction for the same contribution twice under Section 80CCD(1) as well as Section 80CCD(1B).

c) Section 80CCD(2): Under this section, an employer can make a contribution to the employee’s NPS account. The employee can avail of a deduction from their taxable income for the NPS contribution made by the employer. The employee can avail of the deduction for the entire amount contributed, subject to a maximum of 14 percent of salary for central and state government employees, and 10 percent for other employees.

The total deduction that can be availed of for NPS is Rs. 1,50,000 (Section 80CCD(1)) + Rs. 50,000 (Section 80CCD(1B)) + Contribution made by the employer up to a specified limit (Section 80CCD(2)).

Section 80D (Health Insurance Premium)

An individual can avail of a deduction from taxable income for the health insurance premium paid for self, spouse, and dependent children. The maximum deduction that can be availed in a financial year is Rs. 25,000. If you or your spouse or both are senior citizens, the maximum deduction allowed is Rs. 50,000.

You can avail of a separate deduction for the health insurance premium paid for your parents. The maximum deduction that can be availed in a financial year is Rs. 25,000. If one or both of your parents are senior citizens, the maximum deduction allowed is Rs. 50,000.

Section 80E (Interest Paid on Education Loan)

An individual can avail of a deduction from taxable income on the interest paid on an education loan taken for pursuing higher education. The maximum deduction allowed is the interest amount paid in a financial year. The deduction can be availed for 8 years or till the interest is paid off in full, whichever is earlier. An individual can avail of the deduction for an education loan taken for the higher education of self or relative (spouse and children).

Section 80EEB (Interest on Vehicle Loan Taken for Purchase of Electric Vehicle)

High fuel prices and consciousness towards protecting the environment are pushing people to buy electric vehicles. The government is doing its bit to encourage people to adopt electric vehicles by giving them income tax benefits.

An individual can avail of a deduction from taxable income for a vehicle loan taken for the purchase of an electric vehicle. The maximum deduction that can be availed in a financial year is the interest paid or Rs. 1,50,000, whichever is lower. The loan should have been sanctioned between 1st April 2019 and 31st March 2023.

Section 80TTA (Interest on Savings Account)

Most of us maintain a savings account for receiving income and paying for various expenses. The interest earned on the savings account can be availed as a deduction from taxable income. The maximum deduction allowed in a financial year is the interest amount earned or Rs. 10,000, whichever is lower. The savings account can be with a bank or post office. The benefit of Section 80TTA is not applicable to senior citizens.

Section 80TTB (Interest on Deposits for Senior Citizens)

Senior citizens can avail of a deduction from taxable income on the interest earned on deposits with a bank or post office. The maximum deduction allowed in a financial year is the interest earned or Rs. 50,000, whichever is lower. The deduction can be availed on interest earned on deposit accounts such as savings, recurring, fixed deposits, etc.

Section 24 (Interest Paid on a Home Loan)

An individual can avail of a deduction from taxable income on the interest paid on a home loan. The maximum deduction allowed in a financial year is the interest paid or Rs. 2 lakh, whichever is lower. The acquisition or construction of the house should have been completed within 5 years of availing of the home loan.

In the case of an under-construction property, the deduction on interest paid till completion of construction can be availed separately. The deduction of this interest amount can be availed after completion of construction in equal instalments over 5 financial years (20 percent in each year).

There are some more sections under which tax benefits can be availed. However, the above-discussed sections of the Income Tax Act are most widely used by many individuals for availing deduction from taxable income. Now that you are aware of these sections and the deductions that you can avail under them, make sure you make the most of them to maximise your income tax savings.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn

Investors can invest in ELSS mutual funds to save income tax.
First Published: 30 Jan 2023, 08:19 AM IST