Summary of key income tax exemptions
The following are some of the key exemptions from total income available to individuals.
- Section 80C is available on select investments or outlays like PPF, CPF, ELSS, life insurance premiums, tuition fees for children, ULIP contributions, home loan principal, etc. up to a maximum of Rs150,000 per year. The overall limit can be increased to Rs200,000 specifically for National Pension Scheme (NPS) contributions.
- Section 80TTA is available on interest received on savings bank account up to a maximum of Rs10,000 per year from a bank, cooperative society or post office. Senior citizens above the age of 60 can claim enhanced benefit up to Rs50,000 per year under Section 80TTB of the Income Tax Act.
- Section 80GG on house rent paid is available to those who do not receive house rent allowance (HRA). The condition is that the taxpayer, spouse or minor child should not own residential accommodation at the place of employment and the taxpayer should not have self-occupied residential property in any other place. The limit is Rs60,000 per year at the maximum.
- Section 80E is available for interest paid on education loans for higher studies for self, spouse or children. Even a legal guardian can claim such expenses. The only condition is that the loan should be repaid in 8 years. You can have a longer tenure loan but Section 80E exemption is only available for 8 years. The interest component is deductible without any upper limit.
- Section 80EE for interest on home loan was specifically inserted for low cost homes below the value of Rs50 lakhs and is only available to first time home owners. The loan amount must be less than Rs35 lakhs. This exemption of Rs150,000 is available in a time bound manner and is over and above Rs200,000 exemptions under Section 24.
- Section 80CCG for RGESS is given to encourage the equity cult in India. This is for specified equity investments by persons with annual income of less than Rs12 lakhs and subject to a lock-in period of 3 years. The exemption is given up to 50% of the amount invested in specified equities.
- Section 80D is an important exemption pertaining to premium paid on Medical Insurance (Health Insurance). The individual can claim a deduction of Rs25,000 under section 80D on insurance for self, spouse and dependent children. An equivalent deduction for insurance of parents is also available and the limit of exemption goes up to Rs50,000 if parents are senior citizens. Maximum overall limit is Rs100,000.
- Section 80DD is a special exemption for disabled dependent and is available for rehabilitation of handicapped dependent relatives. This includes expenses for medical treatment (including nursing), training and rehabilitation of handicapped dependent relative as well as payment of deposit under specified schemes. The exemption limit is Rs75,000 where disability is 40% to 80% and Rs125,000 where disability is more than 80%. This requires a certificate of disability issued by prescribed medical authority. In addition a deduction of Rs40,000 is also available under Section 80DDB for medical expenditure on self or dependent relative.
- Section 80U for physical Disability is available up to Rs75,000 which can go up to Rs125,000 for severe disability.
- Section 80G exemption is available for specific Donations made to social causes like National Defence Fund, PM Relief Fund, National Illness Assistance Fund, National Children’s Fund, Swachh Bharat Kosh, Clean Ganga Fund etc. The rate of exemption is 100% or 50% on a case-by case basis.
- Section 80GGC is a recent section inserted for contribution to political parties and is available to individual taxpayers (Section 80GGB for corporates). Such contributions can be made either by way of cheque / DD or electoral bonds.
- Section 80RRB is a special exemption with respect to any Income by way of royalty on a patent and is exempt up to Rs300,000 or actual income, whichever is less. The patent holder must be an individual and a resident Indian.
Taxpayers can use exemptions smartly to reduce their tax burden substantially, at the same time making directed contributions and long term investments.