How Can You Claim Tax Exemption? What Can be Claimed Under 80c & Other Sections?

All about Income Tax exemptions

When the financial year ends, and the time of Income-tax filing comes, the salaried class starts thinking about the ways to save maximum tax. To pay the right tax, the citizens of India must understand the tax slabs of India and the components of salary breakup. It will help you in figuring out how you can save taxes. There are certain tax exemptions provided by the Government of India. Read here below:

House Rent Allowance

All salaried individuals who pay rent become liable to claim tax exemptions at the time of filing an income tax return. The Income Tax department of India has defined a method for calculating HRA which one can claim as a tax exemption.

Method to calculate HRA:

• HRA received in actual
• 50 percent of basic salary +DA for metro cities
• 40 percent of basic salary & DA for non-metro cities
• Actual rent-paying less 10% from basic salary +DA

Leave Travel Allowance

Salaried employees can get tax exemption for a trip that is planned within India in the form of LTA or leave travel allowance. However, you can only claim tax exemption for this allowance if the trip benefit is availed by you or your family members like children, parents, or spouse.

This particular exemption is the one that you get for actual expenses incurred during the trip. You are required to submit the travel bills to your employer for claiming this tax exemption. Please make sure that the expenses like sightseeing, hotel accommodation, food bills, etc. should not be part of your expenses to be submitted to the employer. This tax exemption is limited to the leave travel allowance provided by the company.

Employee Contribution to Provident Fund

The Employee Provident Fund is a kind of social security scheme started by the Government of India. Under this, both employer and employee are required to make a contribution of 12 percent, i.e. equivalent to the basic per month salary of an employee as a provident fund and pension. It is a mandatory contribution to be made as per the EPF Act, 1952. The balance lying in your EPF account is tax-free if you do not withdraw from your EPF account before 5 years.

To get a tax exemption on EPF, you are required to calculate the total EPF contribution made during the entire financial year and mention the same at the time of filing the Income Tax return. In case you fail to make claim deductions for your contribution under Section 80C, you do not require to offer your portion of EPF contribution for taxation, but only the interest.

Get Deduction on Interest Amount Paid as a part of Home Loan

If you have taken a home loan, the interest you are paying for it becomes tax-deductible up to 2 Lakhs as per Section 24 of the Income Tax Act. If that house is on rent, then in that case, there is be no upper limit. However, the total loss that you can claim on that house property is a maximum of 2 Lakh.

Deposit Some Money in your Savings Account

It is one of the simplest tax deductions that one can claim while filing Income Tax. The interest earned on money deposited in saving accounts is tax-free up to 10,000 each year according to Section 80 TTA. The limit set for senior citizens for both fixed deposit and the savings accounts is Rs 50,000 according to Section 80TTB.

Investments under Section 80C

1. Tax Saver FDs: You can claim for tax deductions up to 1.5 Lakh by making a 5-year tax-saving fixed deposit. The rate of interest for these fixed deposits are usually between 7-8 percent. But the tax earned on these FDs is taxable.
2. Open a Public Provident Fund Account: It is also one of most government schemes for making tax savings. For a tenure of 15 years, you can make deposits in your PPF account either in banks or post offices in India. The rate applicable to PPF changes each year. The best part is interest earned on PPF deposits is tax-free.
3. Opt for ELSS Funds: It is a type of mutual fund, where minimum investment should be 80 percent of your assets in equity. The lock-in period for such mutual funds is 3 years. The return on ELSS funds is based on the Long term capital gain tax applicable, i.e., 10 % or above exemption limit of Rs 1 Lakh.
4. National Saving Certificate is automatically calculated for the 1.5 Lakh limit given under Section 80 C. This investment can be used as tax-deductible if you have no other investments to show under the Section 80 C limit.
5. Life Insurance Premiums: The premium applicable to different insurance policies falls under the category of the tax-deductible limit of 1.5 Lakh. One also needs to make sure at the time of buying a life insurance policy for making tax savings that insurance cover should be 10 times of the annual premium.
6. Senior Citizen Saving Scheme: Contribution made in Senior Citizen saving scheme is tax-deductible up to 1.5 Lakh. The tenure set for SCSS is 5 years and applicable to all citizens who are above 60 years old. The interest rate on SCSS is a bit higher as compared to prevailing fixed deposit rates for individuals.
7. Sukanya Samaridhi Yojana: All those who are girl-child parents of below the age of 10 years can make some investment under this scheme. This account is opened for the tenure of 21 years. Till the time girls get married or attain the age of 18 years, this account has validity. The interest earned on these deposits is also free, and one of the best ways to claim tax exemptions.

Contributions Made as a Charity

During the financial year, if you have made any charitable donations, then you become eligible to claim tax exemption for that particular financial year—all you are required to submit an 80G certificate. For most of the Non-Government organisations, the tax deduction limit is 50 percent of the donation or 10 percent of the total income adjusted.

Also read:

1) What Percentage is the Customs Tax in India?
2) What are some differences between property tax & wealth tax in India?
3) How to File Income Tax in India? A step-by-step guide
4) Top-10 Highest Tax Paying States in India

FAQs

Q. What is the Tax deduction?

Ans. The tax deduction is a claim that one being a citizen of India can take to minimise its taxable income, which arises from various expenses incurred and investments made. An income Tax deduction is a way of reducing the overall tax liability. The amount of tax deduction is deducted based on the type of tax exemption you are claiming.

Q. What is Section 80C?

Ans. Section 80 C is the easiest and simple option used in India to save tax. Under this section, be it individual or HUF, anyone can invest in some of the tax-saving avenues to claim tax deduction up to 1.5 Lakh. The Indian Government chooses this as a way to encourage people to invest in some tax-saving instruments like SCSS, PPF, NPS, etc., and plan for a better retirement.

Q. Are both NRIs and Indian Residents can claim tax deduction under Section 80C?

Ans. Yes, both Indian residents and NRI are liable to claim tax deductions under Section 80C.

Q. Is Personal Accident insurance also covered under Section 80C?

Ans. Yes, be it any life insurance premium, all are part of Section 80C which includes Personal Accident insurance too. The insurance amount should be 10 times the annual premium you are paying.

Q. What is an equity-linked saving scheme?

Ans. Equity-linked saving schemes are mutual funds that come with 3 years of lock-in-period. It is only mutual funds that are liable for tax deduction according to Section 80C of the Income Tax Act. The investment in these mutual funds primarily takes place in the equity markets that in the future will give higher returns as compared to other tax-saving schemes.

Q. What is the National Pension System?

Ans. The NPS is a kind of retirement plan that is administered and regulated by the Pension Regulatory Fund authority of India. If you are subscribing to NPS, your money is invested either in debt or equity instruments. The maturity value of these investments depends on the performance of the asset classes. At present, the capping on equity exposure falls within the range of 50-75%.