There are certain specified investments and expenses under Section 80C of the Income Tax Act that helps taxpayer to lower tax liability.
If you have opted to continue with the existing or the old tax regime while filing your income tax return (ITR) for the financial year 2020-21, you can avail several Deductions available under the Income Tax Act, 1961. However, before you settle to do so, make sure you have made a comparison of tax payable under the old and new tax regime.
Primarily, there are 4 key income tax Deductions for a taxpayer to avail and bring down the tax liability for the assessment year 2021-22 in the old tax regime. Other than section 80C, there are a few other deductions available to a taxpayer.
Tax benefit under section 80C
There are certain specified investments and expenses under Section 80C of the Income Tax Act that helps taxpayer to lower tax payable. The maximum limit, however, is up to Rs 1.5 lakh a year that can be across all or any of those investments or expense. The specified investments include five-year notified tax-saving bank deposits, life insurance premium, Employees’ Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), Senior Citizens’ Savings Scheme (SCSS), Equity-linked Savings Scheme (ELSS). Section 80C tax benefit on home loan (principal amount) is also available to those paying EMIs. Children tuition fees paid as children school fee also comes under Section 80C.
Tax benefit under section 80D
Premium paid towards Health insurance comes with a tax benefit. The premium could be towards individual plans, Family Faloter plans, Critical illness plans purchased as a separate plan or as Riders from life and standalone the health insurer or general insurance companies.
Currently, for those who are below age 60, the limit stands at Rs 25,000. This includes self, spouse and children and the health cover could be a Mediclaim, Family Floater, Critical Illness etc. the premium paid towards any of these schemes get deducted from the gross income under section 80D. For those who are above age 60, the limit is Rs 50,000. If both the individual taxpayer and the parent are more than 60 years, the deduction can be availed up to Rs 1 lakh. Any payment made towards preventive health check-ups up to Rs 5,000 also qualifies for tax benefit but it has to be within the overall limit.
National Pension System tax saving
Section 80CCD(1): Under Section 80CCD(1) both salaried as well as self-employed may save tax by contributing towards NPS. The deduction shall not exceed an amount equal to 10 per cent of the Basic Salary, including Dearness Allowance, but excluding all other allowance and perquisites. In the case of self-employed, the contributions up to 20 per cent of the Gross Income is deductible from the taxable income under section 80CCD(1) of the Income Tax Act, subject to a ceiling of Rs. 1.50 lakh under Section 80CCE.
Section 80CCD(1B): As per Section 80CCD(1B), the taxpayer either employee or self-employed is allowed a deduction on the amount contributed towards NPS up to Rs 50,000. The deduction under Section 80CCD(1B) is over and above the deduction availed under Section 80CCD(1), however, the same amount cannot be claimed both under both the sections.
Section 80CCD(2): Salaried employees also gets the tax benefit on employer contribution to his or her NPS account. The contribution made by the employer up to 10 per cent of salary (Basic plus Dearness Allowance) can be claimed as a deduction from the taxable income under Section 80CCD(2) of the Income Tax Act,1961. There is no upper cap in terms of the amount on this tax deduction. This deduction is over and above the ceiling limit of Rs 1.5 lakh provided under Section 80C and the limit of Rs 50,000 under Section 80CCD(1B). In the new tax regime, the benefit under Section 80CCD(2) is still available for the benefit of taxpayers.
Education loan repayment
The tax benefit on interest paid in an educational loan qualifies for an income tax deduction when the loan is for higher education. As per the Income Tax Act, “higher education means any course of study pursued after passing the Senior Secondary Examination or it’s equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so.”
The interest on loans taken for higher education is eligible for deduction from the total income under Section 80E with no monetary ceiling on the interest that can be claimed as a deduction. The loan needs to be taken from a financial institution or an approved educational institution for educating oneself, children or even spouse. The deduction shall be allowed for the initial assessment year and seven assessment years immediately succeeding the initial assessment year or till the entire interest is claimed, whichever is earlier.