Indian income tax law offers some benefits for certain types of incomes, popularly called Exempt Incomes and are covered in Section 10’s of the law.
Indian tax law also allows certain payments and investments that you make, to be reduced from your income hence lowering your tax liability. These are popularly called Tax Deductions and are generally covered under Section 80’s of the law.
Deductions
Since you can use deductions to actively bring down your tax liability let’s first look at some important tax deductions with indicative maximum limits:
| Section | Tax Deductions for Payments & Investments | Indicative Max Limit |
|---|---|---|
| 16(ia) | Standard Deduction A lumpsum amount reduced from an employee’s salary | Rs 50,000 |
| 80C | Payments for life insurance premiums and certain types of Long-term tax-saving investments – Life Insurance Premium – Provident fund relating to employment – PPF (Public Provident Fund) – ELSS (Equity Linked Saving Scheme) – NSC (National Savings Certificates) – Tuition fees for children – Home loan repayment | Rs 1,50,000 |
| 80CCD | Investment in NPS (National Pension System/Scheme) Amount invested by you and employer (if employed) | Rs 2,00,000 |
| 80D | Expenses for treatment of a family member with a disability | Rs 75,000 Rs 1,25,000 for a higher disability |
| 80DDB | Expenses for treatment of specified diseases | Lower of: Amount actually paid or Rs 40,000 if less than 60 yrs or Rs 1,00,000 if more than 60 yrs |
| 80G | Charity Amount paid to a recognised charitable institution | 50% of contribution; 100% for certain charities |
| 80GG | Rent for a house You can claim this if you are self employed or where your employer does not pay you HRA (House Rent Allowance) | Lower of : – Rent paid minus 10% of total income – Rs. 5000/- per month – 25% of total income |
| 80TTA | Interest Income Amount of interest you earn can be claimed as a deduction | Rs 10,000 |
| 80U | Suffering from Disability People suffering from specified disabilities can claim a deduction | Rs 75,000 Rs 1,25,000 for a higher disability |
Exempt Incomes
Some important Exempt Incomes with indicative maximum limits are listed below.
| Section | Exempt Income | Indicative Max Limit |
|---|---|---|
| 10(1) | Agricultural Income Includes rent from agricultural land, agri-operations etc | None |
| 10(5) | Leave Travel Concession Amount paid by employer to employee for travel in India | Depending upon type of travel and twice in 4 years |
| 10(10) | Gratuity Amount of Gratuity received by an employee upon leaving employment | Limited by lower of – a specified max amount – percentage of salary – actual Gratuity |
| 10(10A) | Pension Pension received on accumulated basis (and not monthly) | Percentage of such pension |
| 10(10D) | Amount received under a Life Insurance policy Whether upon maturity of moneyback type of policies (some limits apply) or upon death (no limit) | For moneyback policies, limited depending upon premium as a percentage of the policy value |
| 10(11) & 10(12 | Provident Fund Applies to employment related provident fund or PPF (Public Provident Fund) for the following: – Employer’s contribution to provident fund on behalf of employee – Interest earned from provident fund – Amount received from the provident fund at the time of termination | Multiple limits for different types of provident funds |
| 10(13A) | House Rent Allowance Amount received by an employee from employer for renting a house | Lower of: – 50% (In Metros) or 40% of salary – Actual HRA – Rent in excess of 10% of salary |
| 10(15) | Interest Interest income received on specified securities and bonds | None |
| 10(16) | Scholarship for education | None |
