Apart from tax-saving investment options like the National Pension System, Public Provident Fund, Sukanya Samriddhi Scheme, etc the Income Tax Act, 1961, also offers deductions for expenses incurred, which can reduce your tax liability to a huge extent.
Many expenses are covered under Section 80C, which allows a maximum deduction of up to Rs 1,50,000 in a financial year under the old tax regime. Due to retail inflation, the limit has been called for upward revision in the Union Budget 2024-25 by taxpayers. Further, 80G and 80D of the Income Taxes Act allow for other deductions but only in the old tax regime. So, let's start with deductions in the new tax regime and then move on to deductions under the old tax regime.
Deductions Under New Tax Regime
Under the new tax regime payment for travel costs received to cover the travel expenses incurred for employment purposes and daily allowance received to cover regular charges or expenses you incur during absence from your regular place of work can be claimed for deduction.
Further, taxpayers are eligible to deduct interest paid on housing loans for a rented-out property under section 24(b) in the new tax regime. Also, the interest paid on the housing loan is subtracted from the rental income received from the property. Also, any gift less than Rs 50,000 will not attract any tax. Let's now check the expenses that can be deducted under the previous tax system.
Payment for Children's Tuition Fees & Education Loan
The old tax regime allows a deduction for tuition fees paid to educational institutions in India, up to Rs 1,50,000 per year. Only tuition fees, play-school activities, pre-nursery, and nursery classes of up to two children are covered. Note that expenses like development fees or donations are not eligible for this deduction.
Under Section 80E, individuals can claim any deduction for the interest paid on education loans for up to 8 years taken to pursue higher education for themselves or their relatives.
Deduction on Donations
In accordance with Section 80G of the I-T Act, individuals are eligible for deduction for contributions made to approved organizations, which can range from 50 per cent to the full amount of the donation. However, verification that the organisation receiving the donation is qualified for the deduction under section 80G must be done. When completing their tax filings, individuals are required to furnish details such as the recipient's name, PAN, a receipt or 80G certificate from the organization, along with the donation amount.
Life Insurance & Medical Insurance Premiums
Section 80C of the Income Tax Act allows for deductions on life insurance premiums paid for the policyholder, spouse, and children. Individuals can save up to a maximum of 1.5 lakhs each year under this section. But if the yearly premiums paid exceed 10 per cent of the sum assured, tax deductions will apply proportionately.
Further, under Section 80D, individuals are eligible to deduct premiums paid toward medical insurance policies for themselves, their spouses, children, and parents. The deduction limit varies based on the policyholder's age.
Home Loan Interest & Principal Amount
Section 24(b) of the Income Tax Act allows individuals to claim a deduction for the interest paid on home loans. Under this provision, you can claim a deduction of up to Rs 2 lakh per financial year for self-occupied properties. Additionally, if you opt for the old tax regime, you are eligible for a Rs 1,50,000 deduction under Section 80EEA.
Furthermore, a deduction for the repayment of the principal component up to Rs 1.5 lakh per year can also be claimed under Section 80C on your self-occupied property.
