Last Updated on May 25, 2022 by Neera Bhardwaj

While filing your income tax return, you must have come across various sections mentioned in the ITR form. If you are unaware of their particulars, chances are that you are missing out on various tax savings benefits. 

The Income Tax Act, 1961 provides the opportunity (and the rules regulating the same) to avail various deductions before calculating your taxable income. Before paying your taxes, it is of utmost importance to see what these deductions are so that you do not end up paying more tax than you need to. 

All the deductions come under certain sections of the Act. Let us first understand what deductions are before we get into detail.


What are tax deductions?

Tax deductions are claims that an individual can make in order to reduce the amount of total taxable income, which in turn reduces the tax liability of the person.

For instance, assume that your income is Rs. 20 lakh and you are liable to pay tax at 5%. Your tax liability will be Rs. 1 lakh. Now, you noticed that you are eligible for deductions of Rs. 2 lakh on account of certain investments made by you. In such a case, your taxable income comes down to Rs. 18 lakh,  thereby reducing your tax liability to Rs. 90,000.

Depending on your investment or expense nature, the deductions are classified under different sections. Let us read in detail the provisions given under Section 80C, 80D, and 80CCD of the Act.

Deductions under Section 80C

Section 80C of the Income Tax Act was enacted in April 2006. This section describes what expenditures and investments are exempt or allow deductions on them while filing the return and to what limit. Certain investments like PPF, tax saver FDs, NPS, and more come under this section. You can claim a total deduction up to an amount of Rs. 1.5 lakh.

A comparative analysis of the investments that are tax-deductible is given as follows: 

InvestmentType of investmentLock-in periodRate of returnTax benefitsLevel of risk

Unit Linked Insurance Plan (ULIP)

Insurance + Wealth creation 

5 yrs

Varies from plan to plan but around 8-10%

Up to 1.5 lakh annually

Moderate

Tax-Saving Fixed Deposits

Debt investment

5 yrs

5-6%

Up to 1.5 lakh annually

Low

ELSS (Equity Linked Savings Schemes)


Mutual fund



3 yrs



Varies from scheme to scheme but around 12-15%



Up to 1.5 lakh annually



High

PPF (Public Provident Fund)

Debt investment


15 yrs

7.1% forFY2021-2022(revised annually)

Up to 1.5 lakh annually, on interest earned and on maturity amount

Low

SSY (Sukanya Samriddhi Yojana)

Debt investment

21 yrs

7.6% (revised quarterly)

Up to 1.5 lakh annually, on interest earned and on maturity amount

Low

National Savings Certificate (NSC)

Fixed income

5 yrs

6.8% (revised quarterly)

Up to 1.5 lakh annually, interest taxed after 5 yrs

Low

National Pension System (NPS)

Retirement plan

Until retirement

9-12%

Up to 2 lakh

High

Senior Citizen Savings Scheme (SCSS)

Debt investment

5 yrs

8.60%

Up to 1.5 lakh

Low

Apart from these, the deduction can also be claimed on the following:

  • Children’s tuition fees (up to 2 children).
  • Interest on a home loan up to Rs. 50,000.
  • The principal amount of home loan up to Rs. 1.5 lakh.
  • Registration charges and stamp duty on the purchase of a home/property.
  • Infrastructure bonds and NABARD rural bonds up to Rs. 1.5 lakh.
  • Five-year post office time deposit scheme.
  • Life insurance.
  • Pension plans from insurance companies.

It must be noted that the Rs. 1.5 lakh limit is inclusive of deductions on all of the investments and not for each individual investment.

Deductions under Section 80D

Section 80D lists the maximum deduction an individual or HUF can claim pertaining to medical expenses. This includes medical insurance, health checkups, and so on. The deduction amount is different for all individuals, depending on their age.

The deductions are as follows:

  • For the insurance premium for self, spouse, and unemployed children, a deduction of up to Rs. 25,000 is allowed. If parents below 60 yrs of age are also included, the maximum deduction amount rises to Rs. 50,000.
  • For insurance premium for self, spouse, unemployed children, and parents above the age of 60, a deduction of up to Rs. 75,000 is allowed.
  • If individuals themselves are above the age of 60 yrs, a deduction of up to Rs. 1 lakh is allowed on the insurance premium for self, spouse, dependent children, and parents.  

In this context, a dependent child refers to either an unemployed male child under the age of 25 yrs or an unemployed and unmarried female child.

Deductions Under Section 80CCD 

Section 80CCD is a subsection of Section 80C and covers the deductions available to individuals for their investment in the National Pension System. It is further divided into 3 parts: 80CCD (1), 80CCD (1B), 80CCD (2).

  • Section 80CCD (1) gives the details for the deductions available on the employee’s contribution to NPS. Under this section, a maximum deduction of 10% of basic salary + dearness allowance is permitted for salaried individuals. For other non-salaried individuals, the limit is 10% of gross income. For self-employed individuals, this limit is 20%. In total, a maximum deduction of Rs. 1.5 lakh can be availed. 
  • Section 80CCD (1B) allows an additional deduction of up to Rs. 50, 000, which raises the total deduction amount to Rs. 2 lakh.
  • Section 80CCD (2) deals with the deductions available on the employer’s contribution to NPS. This section applies to salaried individuals only. Deductions of upto 10% of their basic salary + dearness allowance or 10% of the contribution made by the employer can be claimed. 

Conclusion

It is very important for you as a taxpayer to educate yourself on the various deductions available.  It permits you to avail the maximum benefits while paying taxes. Moreover, you can make smart investment choices that not only give you good returns but also result in tax savings. Many other deductions are available under other sections of the Act. Make sure to read up on them to mitigate your tax liability. 

Manonmayi
guest
1 Comment
Inline Feedbacks
View all comments
55,00,000+ users trust Tickertape for Investment Analysis!
55,00,000+ users trust Tickertape for Investment Analysis!
55,00,000+ users trust Tickertape for Investment Analysis!
55,00,000+ users trust Tickertape for Investment Analysis!

The blog posts/articles on our platform are purely the author’s personal opinion and do not necessarily represent the views of Anchorage Technologies Private Limited (ATPL) or any of its associates. The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, please consult a professional financial or tax advisor. The content on our platform may include opinions, analysis, or commentary, which are subject to change, without notice, based on market conditions or other factors. Further, the use of any third-party websites or services linked on the website is at the user's discretion and risk. ATPL is not responsible for the content, accuracy, or security of external sites. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. The examples and/or securities quoted (if any) are for illustration only and are not recommendatory. Any reliance you place on such information is strictly at your own risk. In no event will ATPL be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this website.

By accessing this platform and its blog section, you acknowledge and agree to the Terms and Conditions of this website, Privacy Policy and Disclaimer.