Exemptions and Deductions under Income Tax of India

In India, the Income Tax Act, 1961 provides several exemptions and deductions that can reduce a taxpayer’s taxable income. These are useful for individuals and businesses to save on their tax liability. Below is a comprehensive list of the main exemptions and deductions available under Indian tax laws:

1. Section 80C - Deductions for Investments

• Maximum deduction: ₹1.5 lakh per year.
• Investments eligible for deduction include:
• Life Insurance Premiums
• Employee Provident Fund (EPF)
• Public Provident Fund (PPF)
• National Savings Certificates (NSC)
• Equity-Linked Saving Scheme (ELSS)
• Principal repayment on home loan
• 5-year fixed deposits with banks and post offices
• Tuition fees for up to two children
• Sukanya Samriddhi Yojana deposits

2. Section 80D - Deduction for Health Insurance Premium

• Deduction for self, spouse, children: Up to ₹25,000.
• For senior citizens: Up to ₹50,000.
• Additional deduction of ₹50,000 for parents aged 60 and above.
• Preventive health check-up: Deduction of up to ₹5,000 (within the overall limit).

3. Section 80DD - Deduction for Maintenance and Medical Treatment of Disabled Dependents

• Deduction up to ₹75,000 for normal disability (40%-80%).
• Deduction up to ₹1.25 lakh for severe disability (80% and above).

4. Section 80DDB - Deduction for Medical Treatment of Specified Diseases

• For individuals below 60 years: Deduction up to ₹40,000.
• For senior citizens (60+ years): Deduction up to ₹1 lakh.

5. Section 80E - Deduction for Interest on Education Loan

• No upper limit.
• Deduction allowed for up to 8 years from the year of first repayment of loan interest.
• Applicable for loans taken for higher education for self, spouse, or children.

6. Section 80G - Deduction for Donations

• Donations to specified funds, charitable institutions, etc. are eligible.
• 100% or 50% deduction based on the type of donation, without or with restriction.
• Examples include donations to the Prime Minister’s National Relief Fund, Swachh Bharat Kosh, and more.

7. Section 80GG - Deduction for House Rent Paid (if not receiving HRA)

• Available to individuals who do not receive House Rent Allowance (HRA).
• Maximum deduction is ₹5,000 per month or 25% of total income, whichever is lower.

8. Section 80GGB/80GGC - Donations to Political Parties

• Deduction for contributions made to political parties or electoral trusts.
• 100% deduction for individuals and companies.

9. Section 80TTA - Deduction on Savings Account Interest

• Deduction up to ₹10,000 on interest earned from savings accounts with a bank, cooperative society, or post office.

10. Section 80TTB - Deduction on Interest Income for Senior Citizens

• For senior citizens (60+ years), deduction up to ₹50,000 on interest income from bank deposits, post office savings, etc.

11. Section 24(b) - Interest on Home Loan

• Deduction up to ₹2 lakh on interest paid on a home loan for a self-occupied property.
• For a let-out property, the entire interest paid can be deducted, but net loss from house property can be set off only up to ₹2 lakh.

12. House Rent Allowance (HRA) - Section 10(13A)

• Exemption on HRA received from an employer.
• Exemption amount is the least of the following:
• Actual HRA received.
• 50% of salary (for metro cities) or 40% (for non-metro cities).
• Rent paid minus 10% of salary.

13. Leave Travel Allowance (LTA) - Section 10(5)

• Exemption for expenses incurred on travel within India.
• Exemption allowed for two journeys in a block of four calendar years.

14. Standard Deduction (for Salaried Individuals and Pensioners)

• Deduction of ₹50,000 per year from salary income.

15. Section 10(14) - Special Allowances

• Certain special allowances provided by employers are exempt, such as:
• Transport Allowance (for handicapped employees): ₹3,200 per month.
• Uniform Allowance
• Children’s Education Allowance: ₹100 per child (up to 2 children).
• Hostel Expenditure Allowance: ₹300 per child (up to 2 children).

16. Agricultural Income

• Agricultural income is exempt from income tax, but it may be considered for rate purposes if the total income exceeds certain limits.

17. Income from Gratuity - Section 10(10)

• Gratuity received by employees is exempt up to a specified limit (currently ₹20 lakh for non-government employees).

18. Provident Fund Withdrawals

• The amount withdrawn from the Employee Provident Fund (EPF) after 5 years of continuous service is tax-free.

19. Voluntary Retirement Scheme (VRS) Compensation - Section 10(10C)

• Exemption up to ₹5 lakh on amounts received under VRS.

20. Income from Life Insurance Policies

• Proceeds from life insurance policies are tax-free under Section 10(10D), subject to certain conditions.

21. Dividend Income

• Dividend income from domestic companies is tax-free up to ₹10 lakh under Section 10(34). Beyond ₹10 lakh, dividends are taxable at 10%.

22. Section 54, 54EC, 54F - Capital Gains Exemptions

• Section 54: Exemption on long-term capital gains from the sale of a house property if reinvested in another residential property.
• Section 54EC: Exemption on long-term capital gains from sale of property if reinvested in specified bonds (NHAI/REC) within 6 months.
• Section 54F: Exemption on long-term capital gains from sale of any asset other than a house property if the sale proceeds are reinvested in a residential property.

23. Section 87A - Tax Rebate for Low-Income Individuals

• Rebate of up to ₹25,000 available for individuals with a total income up to ₹7 lakh.

24. Income of Minor Children - Section 10(32)

• Income of minor children is clubbed with the parent’s income, but an exemption of up to ₹1,500 per child (for up to two children) is allowed.

These are some of the prominent exemptions and deductions under the Indian Income Tax Act, which taxpayers can utilize to reduce their taxable income. The availability of these exemptions depends on eligibility and specific conditions provided in the law.