Income Tax Deductions for FY 2023-24 under Old Tax Regime
Deductions for Individuals under I-T Act: In a financial year, individuals accumulate income across five distinct categories, contributing to the calculation of their gross total income, which is subject to income tax. However, to determine the net taxable income, taxpayers can benefit from specific deductions outlined in the income tax act. These deductions are tailored to particular taxpayers and are applicable under specific conditions, allowing individuals to reduce their taxable income by availing themselves of these provisions.
Understanding the nuances of available deductions is crucial for optimizing tax liabilities. By leveraging the deductions specified in the income tax act, taxpayers can strategically minimize their taxable income, ultimately leading to potential savings in income tax payments. It is essential for individuals to stay informed about these provisions and assess their eligibility to make the most of available deductions, thereby ensuring a more tax-efficient financial strategy.
Following are the major income tax deductions that are available under the old tax regime for the FY 2023-24.
Section 80C
Section 80C stands as a valuable income tax deduction, serving to reduce your taxable income and consequently lowering your overall tax liability. This provision encompasses specific investment and payment alternatives that can effectively trim your taxable income by up to Rs 1.5 lakhs. It’s important to note that while the deduction is claimed when filing your income tax return, the actual investment must be made during the relevant financial year.
Some of the most advantageous tax-saving and investment options eligible for deductions under Section 80C include:
- PPF (Public Provident Fund): A secure investment offering tax benefits.
- EPF (Employees’ Provident Fund): An employee-oriented scheme for long-term savings.
- 5-year Bank or Post office Tax-saving Deposits: Fixed-term deposits with tax-saving advantages.
- NSC (National Savings Certificates): Government-backed savings instrument with tax benefits.
- ELSS Mutual Funds (Equity Linked Saving Schemes): Mutual funds linked to equity markets for potential higher returns.
- Kid’s Tuition Fees: Deduction available for tuition fees paid for your children.
- SCSS (Post office Senior Citizen Savings Scheme): Tailored for senior citizens with tax advantages.
- Principal repayment of Home Loan: Deduction available for the repayment of the principal amount on home loans.
- NPS (National Pension System): Tax benefits applicable to Tier-1 deposits, including contributions by central government employees under Tier-II with a three-year lock-in period since April 2019.
- Life Insurance Premium: Premiums paid on life insurance policies qualify for deduction.
- Sukanya Samriddhi Account Deposit Scheme: A savings scheme for the girl child with tax benefits.
It’s noteworthy that the maximum limit of Rs. 1,50,000 encompasses the aggregate deduction under sections 80C, 80CCC, and 80CCD. Understanding and leveraging these options can significantly optimize your tax planning strategy.
Section 80CCC
Contributions made to an annuity plan provided by LIC (Life Insurance Corporation of India) or any other reputable Life Insurance Company, aimed at securing a pension from the fund, qualify for valuable tax benefits under Section 80CCC. Taxpayers can avail a maximum deduction of Rs 1.5 lakh, making it a financially advantageous avenue for individuals planning their retirement.
Section 80CCD
Section 80CCD presents a lucrative opportunity for employees to contribute to Government notified Pension Schemes, such as the National Pension Scheme (NPS), facilitating a robust retirement savings plan. Salaried individuals can contribute up to 10% of their salary, with an additional tax benefit of Rs 50,000 available under Section 80CCD (1b). For self-employed individuals, the contribution limit extends to 20% of their gross income, deductible from their taxable income as per Section 80CCD (1) of the Income Tax Act, 1961.
Notably, contributions to the ‘Atal Pension Yojana’ also qualify for tax deductions under Section 80CCD. However, it’s essential to be mindful that the collective deduction under sections 80C, 80CCC, and 80CCD (1) should not exceed Rs 1,50,000. The additional tax benefit of Rs 50,000 under 80CCD (1b) stands as an extra advantage beyond this limit.
Furthermore, employees can benefit from tax deductions on contributions made by their employers to their NPS accounts under Section 80CCD (2). The deduction amount is capped at 14% of salary (Basic salary + DA) for government employees and 10% for other employees.
Section 80D
Section 80D offers individuals a valuable avenue for tax deductions, allowing claims for various healthcare-related expenses. Individuals can avail deductions for health insurance premiums, excluding cash payments, with limits set at ₹25,000 for self, spouse, dependent children, or parents. This limit extends to ₹50,000 if the family or parents are senior citizens (60 years and above). Additionally, preventive health checkups, even in cash, can be claimed up to ₹5,000 for the mentioned family members.
For senior citizens (aged 60 years and above) without health insurance, a deduction of up to ₹50,000 can be claimed for incurred medical expenses. Although the Income Tax Act doesn’t explicitly define “medical expenditure,” it generally encompasses costs like medical consultations, impairment aids, and medicines.
Furthermore, individuals can claim a tax deduction of up to ₹25,000 for contributions made to the Central Government Health Scheme (CGHS) or any other notified scheme. It’s crucial to note that contributions made on behalf of parents are not eligible for this deduction.
Section 80DD
Under Section 80DD, individuals can secure significant tax benefits by claiming deductions for medical expenses incurred on dependents with a 40% disability. This provision allows a deduction of up to Rs 75,000 for the specified dependents, including spouses, parents, children, or siblings. In cases of severe disability, the deduction limit is extended to Rs 1.25 lakh, providing substantial financial relief.
To avail of this tax benefit, individuals must submit Form No. 10-IA.
Section 80DDB
Section 80DDB provides individuals under the age of 60 with a valuable opportunity to claim tax deductions of up to Rs 40,000 for the treatment of specified critical ailments. This deduction can be availed not only for the individual but also on behalf of their dependents. Notably, for Senior Citizens and Super Senior Citizens (above 80 years), the tax deduction limit under this section has been revised to Rs 1,00,000, offering substantial financial relief for medical expenses.
To ensure eligibility for tax deductions under Section 80DDB, individuals must obtain a ‘Doctor Certificate’ or ‘Prescription’ from a specialist working in a Government or Private hospital. This crucial documentation requirement emphasizes the importance of obtaining professional medical validation for the specified critical ailments.
Section 24 (B)
As of the Financial Year 2017-18, the tax benefits associated with loan repayment on a second house are capped at Rs 2 lakh per annum, regardless of the number of houses owned; the limit remains a fixed Rs 2 lakh, and it is not applied on a per-house property basis. Any unclaimed losses are carried forward for up to 8 subsequent years to offset against house property income, often considered a potential ‘dead loss.’
In situations where construction or acquisition is not completed within 5 years from the end of the financial year in which the capital was borrowed, the deduction limit is reduced to Rs 30,000 only. Interest for the pre-construction or acquisition period is allowable in five equal instalments, starting from the year of house property completion.
For joint home loans, each co-borrower can claim deductions proportionate to their share in the loan. To be eligible for tax benefits under Section 24, possession of a house must be substantiated by a possession certificate.
It’s important to note that, under the new tax regime, deductions towards principal repayment of a housing loan are not available.
Section 80E
Section 80E provides a valuable avenue for tax deduction if you’ve taken a loan for higher education post completing your Senior Secondary Exam. This deduction pertains specifically to the interest paid on your Education Loan, applicable for higher education expenses incurred by you, your spouse, your children, or a student for whom you are the legal guardian. It’s important to note that the Principal Repayment on educational loans does not qualify for tax deduction under this section.
One notable advantage is the absence of a limit on the amount of interest you can claim as a deduction under Section 80E. This deduction is available for a maximum of 8 years or until the interest is fully paid, whichever occurs earlier. An interesting aspect is that Section 80E is open to Non-Resident Indians (NRIs) as well, making it a versatile option for individuals pursuing higher education globally.
Section 80EEA
In addition to tax deductions offered by Section 80C and 24b, individuals can now claim up to Rs 1.5 lakh under Section 80EEA for home loans sanctioned from FY 2019-20 onwards, extending through FY 2023-24 or AY 2024-25. This benefit is subject to specific conditions:
- The home loan must have been sanctioned between April 1, 2019, and March 31, 2020.
- The Stamp duty value of the property should not exceed 45 Lakhs.
- The taxpayer should not own any other residential property at the time of loan sanction.
This tax relief becomes applicable from April 1, 2020 (AY 2020-21) and remains valid until the closure of the home loan tenure. The total interest deduction is now Rs. 3.5 lakh (Rs 2 lakh + Rs 1.5 lakh).
It’s important to note that Section 80EEA applies exclusively to home loans from banks and approved financial institutions. Unlike Section 24, which considers interest paid on loans from friends and relatives for tax benefits, Section 80EEA has a more specified scope.
To claim tax benefits under Section 24, possession of the house is crucial, and interest paid before possession is eligible for deduction over the next 5 years in 5 equal instalments. Unlike Section 80EE, Section 80EEA provides immediate tax relief, even for under-construction properties, without imposing possession or construction completion requirements.
Resident Indians and non-resident Indians (NRIs) alike can leverage the deduction offered by Section 80EEA, making it a versatile and inclusive tax-saving opportunity for homebuyers.
Section 80EEB
Individuals can now enjoy a tax deduction of up to Rs 1.5 lakh on the interest paid for loans taken to purchase Electronic Vehicles under Section 80EEB. To avail of these tax benefits, it’s essential that the loan is approved within the period from January 1, 2019, to March 31, 2023. This presents a unique opportunity for environmentally conscious individuals to not only contribute to sustainable practices but also enjoy financial incentives through tax deductions.
Section 80G/80GGC
Section 80G of the Income Tax Act offers a valuable deduction for contributions made to specific relief funds and charitable institutions. To claim this deduction, contributions must be made through cheque, draft, or in cash. It’s important to note that in-kind donations such as food, clothes, or medicines do not qualify for deduction under Section 80G.
Furthermore, donations made to any political party can be claimed under Section 80GGC. However, as of the Financial Year 2017-18, there has been a reduction in the limit for deductions under Section 80G/80GGC for cash donations. The limit, which was previously Rs 10,000, is now capped at Rs 2,000. This highlights the need for individuals to be mindful of the revised limits when making contributions in cash, ensuring compliance with the latest regulations while supporting charitable causes or political parties.
Section 80GG
Section 80GG provides a valuable Tax Deduction of Rs 60,000 per annum, catering to individuals who neither own a residential house nor receive House Rent Allowance (HRA). This deduction becomes applicable for those renting a residence, and the eligible deduction is limited to the lowest among the following:
- Rent paid minus 10 percent of the adjusted total income.
- Rs 5,000 per month.
- 25% of the total income.
Section 80TTA & Section 80TTB
For senior citizens, the Income Tax Act offers two beneficial sections for tax exemptions on interest income. Firstly, under Section 80TTB, senior citizens can enjoy tax exemption on interest earned from Fixed Deposits and Recurring Deposits in banks or post office schemes, up to Rs 50,000. It’s important to note that if one claims the 80TTB benefit, no deductions can be claimed under the existing Section 80TTA.
On the other hand, Section 80TTA provides deductions for interest income from savings bank deposits, allowing a tax benefit of up to Rs 10,000. However, as of FY 2018-19, this benefit is not available for late income tax filers.
Senior citizens should also be aware that while there is no TDS (Tax Deducted at Source) on interest income up to Rs 40,000 from bank or post office deposits (with the FY 2018-19 TDS threshold limit under section 194A set at Rs 10,000), this lack of TDS doesn’t eliminate the tax liability. Interest income from deposits (FDs/RDs) remains taxable income.
It’s crucial to highlight that the tax benefits provided by Sections 80TTB and 80TTA do not extend to interest income from deposits held with companies, meaning that senior citizens won’t enjoy this benefit for interest income generated from corporate fixed deposits under Section 80TTB.
Section 80U
Section 80U of the Income Tax Act presents a valuable opportunity for individuals dealing with disabilities to avail tax benefits. If you possess a certified disability of at least 40%, you can claim a deduction under Section 80U, providing relief of up to Rs. 75,000 on your income. This deduction is designed to support individuals facing challenges due to disabilities, offering financial assistance while ensuring inclusivity and accessibility.
For the purpose of this section, disability has been defined as one of the following:
- Blindness
- Low vision
- Leprosy-cured
- Hearing impairment
- Loco motor disability
- Mental retardation
- Mental illness
The section also provides a definition for a severe disability which refers to a condition where the disability is 80 percent or more. Severe disability also includes multiple disabilities, autism and cerebral palsy. A deduction of Rs. 1,25,000 is allowed for people with severe disability.
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