Deductions and Exemptions

Difference vs Tax Exemptions and Tax Deductions

A particular amount, which is reduced from an individual’s total tax liability, is called an income tax deduction. A particular income, which is exempt from tax and thus, not included in one’s total tax liability is called an income tax exemption. Deductions are covered under section 80C to 80 U of The Income Tax Act whereas exemptions are mostly defined under section 10 of Income Tax Act, 1961.

Income tax Deductions

Income tax department with a view to encourage savings and investments amongst the taxpayers have provided various deductions from the taxable income under chapter VI A deductions. 80C being the most famous, there are other deductions which are beneficial for the taxpayers to reduce their tax liability. Let us understand these deductions in detail:

Section 80C – Deductions on Investments

Section 80C is one of the most popular and favourite sections amongst the taxpayers as it allows to reduce taxable income by making tax saving investments or incurring eligible expenses. It allows a maximum deduction of Rs 1.5 lakh every year from the taxpayers total income.

Here are some investment options that are allowed as deduction u/s 80C. They not only help you with saving taxes but also help you grow your money. A quick comparison for the options is tabulated below :

Investment options	Average Interest	Lock in period for	Risk factor
ELSS funds	12% – 15%	3 years	High
NPS Scheme	8% – 10%	Till 60 years of age	High
ULIP	8% – 10%	5 years	Medium
Tax saving FD	7% – 8%	5 years	Low
PPF	7.10%	5 years	Low
Senior citizen savings scheme	7.4%	5years (can be extended for other 3 years)	Low
National	6.8%	5 years	Low
Sukanya Samriddhi Yojana	8.4%	Till girl child reaches 21 years of age (partial withdrawal allowed when she reached 18 years)	Low

Section 80D – Medical Insurance

A person (as an individual or HUF) can claim a deduction of Rs.25,000 under section 80D on insurance for self, spouse and dependent children. An additional deduction for insurance of parents is available up to Rs 25,000, if they are less than 60 years of age. If the parents are aged above 60, the deduction amount is Rs 50,000.

In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction available under this section is up to Rs.1 lakh.

Example: Rajat’s age is 65 and his father’s age is 90. In this case, the maximum deduction Rohan can claim under section 80D is Rs. 100,000.
From FY 2015-16 a cumulative additional deduction of Rs. 5,000 is allowed for preventive health check.

Section 80E – Interest on Education Loan

A deduction is allowed to an individual for interest on loans taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian.

80E Deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.

Section 80 TTA – Interest on Savings Account

If you are an individual or an HUF, you may claim a deduction of maximum Rs 10,000 against interest income from your savings account with a bank, co-operative society, or post office. Do include the interest from savings bank account in other income.

Section 80TTA deduction is not available on interest income from fixed deposits, recurring deposits, or interest income from corporate bonds.

Section 80G – Donations

The various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction.

From FY 2017-18 any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs 2000 should be made in any mode other than cash to qualify for 80G deduction.

Income Exempt From Tax As Per Section 10

Most income that is exempted from tax is listed under Section 10 of the Income Tax Act. This section contains a list of income that is deemed or considered to be free from taxation.

Exempted income specified under Section 10 is as follows:

Section Number	Description
10(1)	Agricultural Income
10(2A)	Income received by partners of a firm as Profit Share
10(10)	Gratuity
10(10A)	The commuted value of the pension earned by an individual
10(10AA)	Any amount earned via encashment of leave at the time of retirement
10(10CC)	Any income received through taxation on perquisites
10(10D)	Any amount acquired via a life insurance policy
10(11)	Any payment received via the Statutory Provident Fund
10(12)	Any payment received via a recognised or authorised Fund
10(13A)	House Rent Allowance
10(14)	Allowances utilised to meet business expenses
10(44)	Income generated through the NPS Trust

Most Popular Questions

Faq

Can I claim the 80C deductions at the time of filing return in case I have not submitted proof to my employer?

AProofs for making investments are submitted to the employer before the end of a Financial Year (FY) so that the employer considers these investments while determining your taxable income and the tax deduction that needs to be made. However, even if you miss submitting these proofs to your employer, the claim for such investments made can be done at the time of filing your return of income as long as these investments have been made before the end of the relevant FY.

Can a company or a firm take the benefit of Section 80C?

The provisions of Section 80C apply only to individuals or a Hindu Undivided Family (HUF). Hence, a company or a firm cannot take the benefit of Section 80C.

I have made an 80C investment on 30 April 2021. For which year can I claim this investment as a deduction?

You can claim deduction for investments made in the return of income for the year in which you have made the investment. Therefore, if you have made the investment on 30 April 2018, you will be eligible to claim such investment as a deduction during FY 2021-22.

I am paying medical insurance premium for a medical policy taken in my name, my wife and children. I am also paying premium on a medical policy taken in the name of my parents who are above 60 years. Can I claim a deduction for both premiums paid?

The premium you have paid on the policy taken for yourself, spouse and children is eligible for a deduction under Section 80D upto a maximum of Rs 25,000. In addition to this, you will also be eligible to claim deduction of premium paid on the policy taken for your senior citizen parents upto a maximum of Rs 50,000 (this limit was Rs 30,000 until FY 2017-18. Hence, you can claim both premiums paid as a deduction under Section 80D.

What are the consequences of Not Disclosing Exempted Income?

Due to the fact that certain income does not attract any tax, many taxpayers fail to disclose details regarding this type of income. However, individuals who do not disclose these particulars may end up under the scanned of the Income Tax Department, since they will be unable to pinpoint the origin of such income.