Budget 2015: Govt offers individual tax savings of up to Rs 21,500 by way of additional deductions

A combination of additional tax saving on investment in pension schemes, medical insurance premium and additional exemption on transport allowance is set to result into savings of up to Rs 21,506 in a year for an individual falling in the highest marginal rate tax category.

In his budget speech, the Finance Minister, Arun Jaitley announced additional benefit to individuals on investment in National Pension Scheme and also raised the deduction available on health insurance premium from Rs 15,000 to Rs 25,000 in a year along with raising deduction limit for treatment of severe disabilities.

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The biggest benefit in terms of tax savings came in the form of investment in NPS as the government allowed tax benefit on investment of up to Rs 50,000 in a year under Section 80CCD over and above the benefit available on Rs 1.5 lakh under section 80C.

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As a result of the same, an individual can claim total tax benefit of Rs 2 lakh under the two sections provided Rs 50,000 is invested into NPS.

The government has however not made investments in NPS as tax free at the time of withdrawal and therefore it continues to be treated as EET. While the investments and interest accumulations with not be taxed, the money would be taxable at the time of withdrawal.

Other than this the government also increased the deduction limit on health insurance premium  under section 80D from Rs 15,000 to Rs 25,000. This limit, in case of senior citizens has also been raised by Rs 10,000 from Rs 20,000 to Rs 30,000.

While Jaitley also proposed to allow deduction of expenditure of similar amount in case of a very senior citizens who are not eligible to take health insurance, he proposed to increase the limit of deduction in case of very senior citizens u/s 80DDB of the Income-tax Act on expenditure on account of specified diseases from Rs 60,000 to Rs 80,000.

The government has also doubled the exemption limit on transport allowance from Rs 800 per month or Rs 9,600 per year to Rs 1,600 pm or Rs 19,200 in a year.

“Most of measures announced make a lot of sense from the practical aspect. While raising the limit on medical insurance premium by Rs 10,000 will cover the cost of health insurance that people are buying, allowing very senior citizens to claim deduction on expenditure of up to Rs 30,000 makes a lot of sense as they are not eligible for health insurance,” said Vishal Dhawan, a Mumbai based financial planner.

The government also raised the limit of deduction under section 80DD and Section 80 U from Rs 1 lakh to Rs 1.25 lakh in case of severe disability.