Deductions from Gross Total Income (GTI) are specific allowances provided under the Income Tax Act, 1961, of India, enabling taxpayers to reduce their taxable income. These deductions are available under various sections of Chapter VI-A of the Act, each catering to different aspects of expenses and investments that the taxpayer might incur or make during the year. The purpose of these deductions is to encourage savings, provide relief for specific expenses, and promote social welfare activities.
Section 80C: Investments and Payments
One of the most popular sections for deductions, Section 80C, allows deductions up to INR 1,50,000 per year from a taxpayer’s GTI. Eligible investments and expenses are:
- Life insurance premiums
- Contributions to Provident Funds (PF), including Public Provident Fund (PPF)
- Investments in National Savings Certificates (NSC)
- Equity-linked savings schemes (ELSS)
- Tuition fees for two children
- Principal repayment on home loan
- Senior Citizens Savings Scheme
- Sukanya Samriddhi Account
Section 80CCC: Pension Contributions
Deductions under this section are for contributions to certain pension funds to the extent of INR 1,50,000. This limit is within the overall ceiling provided under Section 80C.
Section 80CCD: Contributions to Pension Schemes
- 80CCD(1):
Contributions to the National Pension System (NPS) and Atal Pension Yojana (APY) are deductible up to 10% of salary (for employees) or 20% of gross total income (for self-employed), within the overall ceiling of INR 1,50,000 under Section 80C.
- 80CCD(1B):
An additional deduction for contributions to NPS up to INR 50,000, which is over and above the limit available under Section 80C.
- 80CCD(2):
Employer’s contribution to NPS, deductible up to 10% of the salary of the employee, which does not come under the INR 1,50,000 limit.
Section 80D: Medical Insurance Premiums
This section offers deductions for premiums paid on medical insurance for self, spouse, children, and parents. The limits are:
- INR 25,000 for insurance of self, spouse, and dependent children
- An additional INR 25,000 for insurance of parents (INR 50,000 if parents are senior citizens)
Section 80DD: Maintenance Including Medical Treatment of Disabled Dependents
Deductions of up to INR 75,000 for expenses on medical treatment, including nursing, training, and rehabilitation of handicapped dependent relatives. If the dependent suffers from severe disability, the deduction amount rises to INR 1,25,000.
Section 80DDB: Medical Treatment for Specified Diseases
Deductions for amounts spent on treatment for specified diseases, with limits up to INR 40,000 (or INR 1,00,000 for senior citizens).
Section 80E: Interest on Education Loan
Deduction for interest paid on loans taken for higher education for self, spouse, children, or a student for whom the taxpayer is a legal guardian. There is no upper limit, but the deduction is available for a maximum of 8 years.
Section 80G: Donations to Charitable Organizations
Deductions for donations to specified relief funds and charitable institutions can range from 50% to 100% of the donation, subject to certain qualifying conditions.
Section 80GG: Rent Paid
For those not receiving house rent allowance, a deduction for rent paid is available under Section 80GG, subject to certain conditions.
Section 80TTA: Interest on Savings Accounts
A deduction of up to INR 10,000 is allowed on interest earned from savings bank accounts.
Section 80TTB: Interest Income for Senior Citizens
Senior citizens can claim a deduction of up to INR 50,000 on interest earned from deposits.
Rebates and Reliefs
In the Indian Income Tax Act, 1961, rebates and reliefs are provisions designed to reduce the tax burden on individuals by decreasing the amount of tax payable. These terms often cause confusion, but essentially, they refer to amounts subtracted from the income tax before calculating the final tax due.
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Rebate under Section 87A
This is a rebate provided to individual taxpayers whose total income does not exceed a specified limit. The purpose is to provide relief to lower-income individuals. For the financial year 2021-2022 (Assessment Year 2022-2023), the rebate under section 87A is available to a resident individual whose total income does not exceed ₹5,00,000. The amount of the rebate is 100% of the income-tax or ₹12,500, whichever is less. This means if the total tax payable before the rebate is less than ₹12,500, then that amount is the rebate; if more, the rebate will be ₹12,500.
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Relief under Section 89(1)
When an individual receives salary arrears or advance salary, it may push their total income into a higher tax bracket, increasing their tax liability disproportionately for that fiscal year. Section 89(1) provides relief by allowing the taxpayer to claim a reduction in the tax liability by recalculating tax for the years in which the income would have been received normally. The relief works by offsetting the excess tax paid during a year when income is received as arrears or in advance.
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Relief for Foreign Taxes (Section 90 & 91)
For residents who earn income that is also taxed in another country, India provides relief to avoid double taxation. Section 90 covers taxpayers who have paid tax in countries with which India has a Double Taxation Avoidance Agreement (DTAA). Section 91 provides relief for countries with which India does not have such an agreement. The relief is generally the lower of the tax paid abroad or the tax payable in India on such foreign income.
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Deduction for Interest on Savings Accounts (Section 80TTA)
This section offers a deduction up to ₹10,000 on the interest earned from savings bank accounts. This is beneficial for individuals as it reduces the taxable income derived from interest, thus indirectly providing relief by lowering the overall tax liability.
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Deduction for Senior Citizens (Section 80TTB)
A higher deduction of up to ₹50,000 is allowed for senior citizens on the interest income from deposits (bank or post office). This is aimed at providing relief to senior citizens who rely more on interest income during retirement.
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Deduction for Persons with Disabilities (Section 80U)
Individuals suffering from a physical disability (including blindness) or mental retardation are entitled to a tax deduction ranging from ₹75,000 to ₹1,25,000 depending on the severity of the disability. This provides financial relief by reducing the taxable income.
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Housing Loan Interest Rebate (Section 24)
Interest paid on a home loan for a self-occupied property is eligible for a deduction up to ₹2,00,000 under this section. This is a significant relief as it reduces the net taxable income, lowering the overall tax liability for homeowners.