There are certain deductions available to the salaried individuals under the Income Tax Act, 1961. Since the tax paid by these individuals make up for the biggest share of the total tax paid by the taxpayers in the country, it is essential to provide this section of taxpayers sufficient tax-saving mechanisms to ensure the continuance of this practice among them. Tax Deductions differ significantly from Tax Exemptions which are those sources of income which are exempted from tax, while tax deductions relate to certain deductions that are made to the gross total income which is arrived at after the exempted income is deducted from the salary.
Key Tax Deductions Available To Salaried Individuals
The Income Tax Act, 1961 provides various tax-saving provisions for these individuals, most of which are mentioned in Section 80 of the Act. However, some of the major tax deductions are:
- Deduction for the loan for Higher Studies– Section 80E of the Income Tax Act, 1961 deals with this deduction. As per this section, the condition precedent to claiming this deduction is that the loan for the said purpose should have been taken from a bank or a financial institution in India or abroad by the individual himself or his spouse or children. His tax deduction can be claimed from the year from which the loan starts getting repaid up to the next 7 years or before the repayment of loan whichever is earlier.
- Interest on Home Loan– Section 80C deals with this deduction which provides that the homeowners, including the salaried individuals, have an option to claim deduction up to INR 2 Lakh for interest on Home Loan if taken for self-occupancy. In case the house property is let out, the individual can claim a deduction for the entire amount of the interest related to such home loan. This deduction has to be read with Section 24 of the Act for further clarification.
- Exemption from House Rent Allowance– This is subject to total or partial deduction under the Income Tax Act if the salaried individual is staying at a rented accommodation. There are different types of HRA, these include-
- Total HRA received from your employer;
- Rent paid less 10% of basic salary + DA;
- 40% of salary (basic +DA) in case of non-metro cities and 50% of salary (basic+ DA) in case of metro cities.
- Standard Deduction– These deductions vary from budget to budget. Generally, they range between INR 40,000- INR 50,000. This acts as a huge benefit for the salaried individuals who can claim this deduction from their gross total salary.
- Medical Insurance Deduction– Section 80D of the Income Tax Act, 1961 deals with this deduction which the salaried individual can claim on his medical expenses. As per this section, a deduction up to INR 25,000 can be claimed on medical insurance premiums paid for the health of the individual himself, family and dependent parents. In case the parents fall within the age bracket of senior citizens then the deduction can be claimed up to Rs. 50,000.
- Deductions on Savings Account Interest– Section 80TTA of the Income Tax Act, 1961 deals with these deductions, wherein it provides for deduction up to Rs. 10,000 on the income earned by an individual from savings account interest. In case the amount of income from bank interest exceeds the prescribed limit then the excess is subject to being taxed.
- Additional Deduction for interest on Home Loan- Section 80EE of the Income Tax Act, 1961 deals with these deductions, wherein it allows the homeowners to claim an additional deduction of INR 50,000 (Section 24) for the interest of the home loan EMI. This section, however, comes with a proviso that the amount of loan should not be more than INR 35,00,000 and the value of the property should not exceed INR 50,00,000. To claim this deduction, the individual should not have any other property registered under his name at the time when the loan is being sanctioned.
These are some major tax deductions available for a salaried individual under the Income Tax Act, 1961. However, the Act provides for certain other deductions too, like- Leave Travel Allowance, deductions under section 80C, 80CCC and 80CCD(1), the deduction for donations, etc.