A Detailed Guide to Income Tax Deductions in India

Getting your salary is a wonderful feeling. It makes you feel rewarded for all the hours of dedicated work that you put in. But the happiness fades away when a large chunk of your hard-earned income gets converted into tax. It is essential to figure out how you can avoid that high deduction in tax.

Income

The components that make up your salary include your Gross Salary, Provident Fund, Insurance, Leave pay, Gratuity Employee State insurance and Labour Welfare Fund

This income that is received by an employee is taxed under “Income from Salaries”.

You need to find out the slab that your salary will pertain to. After figuring that out you need to be prompt in declaring your investments. This allows the employer to take into consideration the portion of your earnings that you have invested and they will accordingly deduct tax from your salary.

Declaration helps you to avoid the cumbersome process of filing for refunds from the Income Tax department.

Tax Calculation

Taxes are calculated on the annual income of a person, and an annual cycle (year) in the eyes of the Income Tax law starts on the 1st of April and ends on the 31st of March of the next calendar year. The law recognises and classifies the year as “Previous Year” and “Assessment Year”.

Income Tax Slab Rates

Income tax slab rates are for different categories of taxpayers who are taxed progressively higher based on their earnings.

In all the tables listed below, Education Cess of 2% and SHEC of 1% will be levied on the tax computed using the rates given below.

Under Section 87(A), an Income Tax Rebate of ₹b2,000 is provided for all individuals earning an income that’s less than ₹ 5 lacs per annum.

Income Tax Slabs for male individuals below the age of 60 and HUF:

Income Tax Slabs	Income Tax Rates
Total income less than ₹ 2 lacs 50 thousand.	-NIL-
Total income greater than ₹ 2 lacs 50 thousand but less than ₹ 5 lacs.	5% of the amount by which it exceeds ₹ 2 lacs 50 thousand.
Total income greater than ₹ 5 lacs but less than ₹ 10 lacs.	20% of the amount by which it exceeds ₹ 5 lacs.
Total income greater than ₹ 10 lacs.	30% of the amount by which it exceeds ₹ 10 lacs.

Income Tax Slabs for female individuals below the age of 60:

Income Tax Slabs	Income Tax Rates
Total income less than ₹ 2 lacs 50 thousand.	-NIL-
Total income greater than ₹ 2 lacs 50 thousand but less than ₹ 5 lacs.	5% of the amount by which it exceeds ₹ 2 lacs 50 thousand.
Total income greater than ₹ 5 lacs but less than ₹ 10 lacs.	20% of the amount by which it exceeds ₹ 5 lacs.
Total income greater than ₹ 10 lacs.	30% of the amount by which it exceeds ₹ 10 lacs.

Income Tax Slabs for all individuals above the age of 60 – Senior Citizens:

Income Tax Slabs	Income Tax Rates
Total income less than ₹ 3 lacs.	-NIL-
Total income greater than ₹ 3 lacs but less than ₹ 5 lacs.	10% of the amount by which it exceeds ₹ 3 lacs.
Total income greater than ₹ 5 lacs but less than ₹ 10 lacs.	20% of the amount by which it exceeds ₹ 5 lacs.
Total income greater than Rs.10,00,000.	30% of the amount by which it exceeds ₹ 10 lacs.

Income Tax Slabs for all individuals above the age of 80 – Super Senior Citizens:

Income Tax Slabs	Income Tax Rates
Total income less than ₹ 5 lacs.	-NIL-
Total income greater than ₹ 5 lacs but less than ₹ 10 lacs.	20% of the amount by which it exceeds ₹ 5 lacs.
Total income greater than ₹ 10 lacs.	30% of the amount by which it exceeds ₹ 10 lacs.

Deductions: There are various sections under which you can invest your salary and reduce the taxable amount.

Deductions for your taxable amount are available under various sections of the Income Tax act 1961. They are as follows: –

1. Public Provident Fund (PPF):

By contributing to your PPF account, you can get a tax deduction under Section 80C, the Indian Income Tax Act, 1961.

2. Life Insurance Premiums:

You can get an income tax deduction for paying premiums towards life insurance policies for self, spouse and child under section 80C of the Indian Income Tax Act, 1961. The amount received on maturity of the policy is free from tax. However, it is subject to the terms and conditions mentioned in your policy.

3. National Saving Certificate (NSC):

The amount invested in NSC is eligible for tax deduction under section 80C of the Indian Income Tax Act, 1961. National Saving Certificates are one of the highly secured modes of investment in India. But, the interest earned from NSC is taxable. As an NSC is a cumulative scheme, interest is reinvested and qualifies for a tax deduction.

4. Bank Fixed Deposits (FDs):

You can get a tax deduction by investing in fixed deposits for a tenure of 5 years under section 80C of the Indian Income Tax Act, 1961. Many banks in India offer tax-saving fixed deposits. However, the interest accrued on FDs is subject to tax

5. Senior Citizen Savings Scheme (SCSS):

Senior citizens can get a tax deduction by investing in the Senior Citizen Savings Scheme offered by banks. These schemes are eligible for tax deduction under Section 80C of the same act. The interest earned from these schemes is entirely taxable.

6. Post Office Time Deposit (POTD):

Investing in a five-year POTD, you can get a tax deduction under Section 80C. However, interest accrued on the same is fully taxable.

7. Unit-linked Insurance Plans (ULIP):

Investing in ULIPs for yourself, your spouse and your children, you can get tax deductions under Section 80C.

8. Home Loan EMIs:

Equated monthly instalments paid to repay the principal amount of your home loan are eligible for income tax deductions under section 80C of the same act.

9. Mutual Funds & ELSS:

Investing in mutual funds and equity-linked savings schemes, you are eligible for tax deductions under section 80C, the Indian Income Tax Act, 1961.

10. Stamp Duty and Registration Charges for a Home:

Stamp duty and registration fee paid for transferring property are entitled to income tax deduction under section 80C, the Indian Income Tax Act, 1961.

11. Retirement Savings Plan:

You can also get income tax deductions by investing in retirement plans offered by LIC or other insurance providers. Contribution to the National Pension Scheme is also eligible for a tax deduction.

12. Tuition Fees:

The tuition fee paid for your children’s education qualifies for income tax deduction under section 80C. However the fee needs to be paid for full-time education in an Indian university, college and school for any two children. The tuition fee does not include any donations or development fees for education institutions.

13. Medical Insurance Premiums:

A health insurance premium paid for self, spouse and children qualifies for income tax deduction under section 80D of the Indian Income Tax Act, 1961. The deduction allowed under this section is ₹ 25,000 for youngsters and ₹ 30,000 for senior citizens.

14. Infrastructure Bonds:

Investing in infrastructure bonds, you become eligible for income tax deductions under section 80CCF of the Indian Income Tax Act.

15. Charitable Contribution:

Donating to charitable tasks will help you reduce your taxable income under section 80G of the Indian Income Tax Act, 1961. However, make sure that you declare the whole contribution before 31st December each year.

16. Treatment of Disabled Dependents:

Under section 80DD of the Indian Income Tax Act, 1961, you can get income tax deductions for medical expense incurred in the treatment of any disabled dependent of yours.

17. Deduction for Preventive Health Check-ups:

An amount of ₹5,000 spent for preventive health check-ups of an individual or their family members qualifies for tax deduction under section 80D of the Indian Income Tax Act, 1961.

18. Interest Paid on Education Loan:

You can get a tax deduction on the interest paid for an educational loan under section 80E of the Indian Income Tax Act, 1961. The loan can be taken to pursue higher education by the employee or for their spouse, children or a student to whom the employee is a legal guardian.

19. Deduction on House Rent Paid:

An employee can get an income tax deduction for the house rent paid if the employee or their spouse does not own residential accommodation at the place of employment. This deduction is usually applicable for salaried taxpayers under section 80GG of the Indian Income Tax Act, 1961.

Income Tax E-Filing:

Once the tax is deducted, any tax refund is facilitated only when you submit your income tax return for that year. So any TDS on rent payments for NRIs or TDS deduction by banks on your fixed deposits will be refunded only once you file your tax returns and claim the desired tax deduction. You will need to file for tax refunds online once you file your ITR for that year.

You can e-file your Income Tax Return, TDS return, AIR return and Wealth Tax Return online, e-filing your return has obvious advantages like the fact that you won’t have to deal with the hassle of paperwork and waste time sorting through it all. You can simply log on to the secure website and e-file your return.

Hope this article gives you a clear picture of how taxes are deducted from your salary and how you can take measures to reduce your taxable income.