Deductions from Salary

Deductions from salary are crucial for understanding the net taxable income of an individual under the Indian Income Tax Act, 1961. These deductions allow taxpayers to reduce their taxable income, hence decreasing their tax liability by accounting for various expenses and investments that the government incentivizes for social and economic benefits.

1. Standard Deduction

Introduced in the 2018 budget, the standard deduction replaced the transport allowance and medical reimbursement. For salaried employees and pensioners, this deduction amounts to INR 50,000 regardless of actual expenses incurred. This simplification helps reduce the taxable salary income with no need for proof of expense.

2. House Rent Allowance (HRA)

HRA is a significant component for many employees. The deduction on HRA is the least of the following three:

• Actual HRA received.
• 50% of salary (basic + DA) if residing in a metro city (40% for non-metros).
• Excess of rent paid over 10% of salary (basic + DA). This allowance is particularly beneficial for those who live in rented accommodations.

3. Section 80C Deductions

One of the most popular sections under the Income Tax Act, Section 80C, allows a deduction of up to INR 1,50,000 from a taxpayer’s total income. This can be claimed through various investments and expenses:

• Life Insurance Premiums
• Public Provident Fund (PPF)
• Employee Provident Fund (EPF)
• National Savings Certificates (NSC)
• Equity-Linked Savings Scheme (ELSS)
• Payment of tuition fees for two children
• Principal repayment on home loan
• Senior Citizens Savings Scheme (SCSS), etc.

4. Section 80D: Medical Insurance Premium

This section offers deductions for premiums paid on medical insurance. For self, spouse, and dependent children, the limit is INR 25,000 (INR 50,000 if the insured are senior citizens). Additionally, an extra deduction for insurance of parents (father or mother or both) is available to the extent of INR 25,000 (INR 50,000 if parents are senior citizens).

5. Section 80E: Interest on Education Loan

The interest paid on an education loan taken for higher education is deductible under Section 80E. This deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. There is no cap on the amount of deduction under this section.

6. Section 80G: Donations

Donations made to specified relief funds and charitable institutions can be claimed as a deduction under Section 80G. The amount of deduction depends on the type of donation made — it can either be 100% or 50% with or without restriction.

7. Section 80TTA: Interest on Savings Account

A deduction up to INR 10,000 is allowed on interest earned from savings bank accounts under Section 80TTA. This is applicable to individuals and HUFs.

8. Section 80CCD(1B): National Pension System (NPS)

Contributions to NPS are eligible for an additional deduction of INR 50,000 under Section 80CCD(1B), which is over and above the deduction available under Section 80C.

9. Section 24(b): Interest on Home Loan

For a self-occupied property, interest on home loans is deductible up to INR 2,00,000 under Section 24(b). If the house property is rented, there is no maximum limit, but the loss under the head income from house property can be set off only up to INR 2 lakhs.

10. Leave Travel Allowance (LTA)

LTA is tax-free subject to conditions related to travel costs incurred by the employee during the leave period. The exemption is only for the shortest distance on a trip and is limited to the actual travel costs involving air, rail, or bus fares by the shortest route to the destination.

11. Professional Tax

Professional tax paid to a state government is allowed as a deduction from salary income. The amount of deduction is equal to the amount of professional tax paid during the year.