Income Tax Exemptions

Sometimes, the payment of tax can be overburdening for an individual due to many financial reasons. Hence, there are various ways to get exemptions on the taxable income for individuals who fall under the exemption bracket offered by the Government. As a taxpayer, you can check and enjoy various exemption benefits offered under various categories of the Income Tax Act. Here’s a look into some of the most important income tax exemptions a taxpayer can get.

Exemption Rules and Limits Under the Income Tax Act

An exemption is a kind of exception offered during the payment of Income Tax to various entities so that they can save more of their hard-earned money for themselves. Exemption of tax is offered to individuals so that they can have a better financial corpus for themselves in the future.

Section 10 of the Income Tax Act – for Salaried Employees

From house rent allowance to leave travel allowance, there are special allowances offered to salaried employees under Section 10 of the Income Tax Act. Let us elaborate on some of the allowances offered under various sub-sections of Section 10.

Most Prominent Allowances Under Section 10

1. House Rent Allowance

   If the salaried employee pays house rent, then they are eligible for exemption under the house rent allowance which can be either of the following:

   • Actual allowance received for the house rent

   • Actual rent payment (after deducting 10% of salary)

   • 40% of the salary for general residents in India

   • 50% of the salary if the person resides in Chennai, Delhi, Mumbai, or Kolkata.

2. Leave Travel Allowance

   As the name suggests, leaves granted by employers to employees for traveling are known as leave travel allowance. Generally, travel within the country is covered under the LTA as per the company’s rules and guidelines.

3. Children Education Allowance

   This allowance can be availed maximum by 2 children of the employee. Under the children’s education allowance, Rs. 100 per month for each child is exempted.

Section 10 (14) (i)

Under Section 10 (14) (i) of the Income Tax Act, the following allowances are covered:

It is important to note that all the above mentioned allowances are provided by the employer as per the rules and guidelines of the company and may vary from one organization to another.

Section 10 (14) (ii)

Section 80 of the Income Tax Act

1. Section 80C

   U/s 80C, you are able to reduce Rs.1,50,000 from your taxable income. This income tax exemption is allowed to HUF members as well as non-HUF members. A maximum of Rs.1,50,000 can be asserted for the financial year 2021-2022, 2022-2023 each.

   If by chance, you have paid taxes in excess and have invested in PPF, LIC, and Mediclaim, you can claim deductions under section 80C.

   Investment options under Section 80C

   Here is a list of some of the top investment options that will help in saving taxes under section 80C of the Income Tax Act.

   Investment options	Lock in Period	Interest Rate	Risk Involved
   ELSS funds	3 years	12% - 15%	High
   National Pension Scheme	Till 60 years of age	9% - 12%	High
   Public Provident Fund	5 years	7.10%	Low
   Senior citizen savings scheme	5years (extension for 3 years available)	7.40%	Low
   Sukanya Samriddhi Yojana	Till 21 years of age	7.60%	Low
   Tax saving FD	5 years	7% - 8%	Low
   ULIP	5 years	Varies	Medium

2. Section 80CCC

   Under this section of income tax, individuals can avail of income tax exemptions on up to Rs 1,50,000, if he or she has invested or deposited in any annuity plan with LIC or another insurer. The annuity plan you have invested in should be for receiving the pension from a fund being referred to in Section 10(23AAB). The pension which is got from receiving the amount or from the annuity on the surrender of the annuity including bonus and interest is taxable in the year of receipt.

3. Section 80CCD

   Under this section, the older generation can now save additional money for leading a better life. The Central Government of India declared that the older citizens of India are now able to avail themselves of the benefits and enjoy the incentives on the policies that invest in pension plans.

   Both the employers and the employees are eligible for income tax exemptions and are subjected to subtraction of below 10% of the salary of the concerned person.

4. Section 80CCF

   According to the Income Tax Act 1961 Section 80CCF, both the HUF (Hindu Undivided Families) and non-HUF members are now eligible to enjoy the tax benefits of subscribing to the infrastructure bonds for the long term. This initiative has been declared by the government. Under this section, the citizens can claim a deduction of up to Rs. 20,000.

5. Section 80 CCG

   Very few people get to enjoy the income tax exemptions under this section of the Income Tax Act. Citizens who belong to a specific community and have made an investment in equity savings schemes that are declared by the Government of India, get to enjoy income tax exemptions under Section 80CCG. The deductions allowed are 50% of the amount of the investment.

6. Section 80D

   In general, this section offers income tax exemption to individuals who have already invested in health insurance policies. The taxpayers can claim Rs 15,000 as a deduction at the time of making a payment towards health policy taken under the name of their wife or children or self. If the person is over the age of 20 years, he or she can claim income tax exemption of up to Rs. 20,000.

   Both the individuals and the Hindu Undivided Families are eligible to claim this benefit under section 80D of the Income Tax Act, 1961.

   There are few a sub-sections that are also present under Section 80D to offer several benefits for the taxpayers. Below enlisted are a few highlights of the sub-sections of the Section 80D:

   

7. Section 80DD

   The provisions for income tax exemptions are offered under section 80DD in two situations. In case of severe disability, the citizen can claim income tax exemption of up to Rs. 1.5 lakh and in case of normal disability, one can claim exemption of up to Rs. 75,000.

   The individuals who are buying a policy for someone with a disability in her/his family can also claim income tax exemptions under this section.

   So, the deductions of Rs. 1.25 lakh for critical disability and Rs. 75,000 for normal disability persons. Both the Hindu Undivided families and the individual are eligible for this benefit.

8. Section 80DDB

   Section 80DDB is one of the most important sub-sections of the Income Tax Act as it helps the individual to tide over their concerns against the treatment of the critical disease. The provisions for income tax exemptions are created to meet the need of the concerned people across the country. The deductions of Rs. 40,000 can be claimed by an individual for the normal treatment of a disease. However, Rs. 40,000 can be enhanced to Rs. 60,000 in the case of senior citizens.

   Both the Hindu Undivided families and normal individuals are eligible to enjoy the benefits under this section of the IT Act.

9. Section 80E

   According to Section 80E of the Income Tax Act, 1961, providing education to their kids or a dependent should not be a burden for anyone in the country. Hence, under this section, the IT Act has made it possible for the parents and guardians to claim income tax exemptions on the tuition fees paid by them.

   This section is also helpful for individuals who have taken loans from approved charitable organizations or financial institutions.

   Following are some other important sub-sections that are meant to offer more benefits to the people of the nation.

10. Section 80EE

    Under this section of the income tax act, 1961 the individuals who are paying loans (with interest) that they have taken to purchase a property for the residential purpose are eligible to enjoy income tax exemptions. As per this section, an individual can get income tax exemptions of up to Rs. 3 lakhs.

11. Section 80G

    As per section 80G of the IT Act, the taxpayers get to enjoy income tax exemptions on the extra taxes paid on their income. If they contribute a certain amount to a charitable fund, they can get the benefit of enjoying the deductions on their tax payment. All the assessee would be able to enjoy the deductions by showing appropriate proof of donations. The limit of the deductions can only be availed depending on certain factors.

    • 100% deductions can be availed if they donate their money to fund such as Prime Minister’s relief fund, National Defense Fund, National Illness Assistance Fund, and so on.

    • 100% deductions can be achieved if they decide to donate to the local authorities, local institutions, to enhance the growth of the sport and to initiate family planning in the local area.

    • 50% of deductions can be availed if there are donations made towards funds such as PM’s Draught relief fund, Rajiv Gandhi Foundation, etc.

    • 50% of income tax exemptions can be achieved if the donations are made towards religious funds and local authorities (except the family planning). The deductions are availed depending on the qualifying limit.

    There are the sub-sections under Section 80G. Here’s a look into the highlights of the sub-sections of Section 80G.

    1. Section 80GG:

       Taxpayers who don’t have access to rent allowance are eligible for income tax exemptions under section 80GG, subject to the highest deductions either 25% of the total income or Rs. 2,000 per month.

    2. Section 80GGA:

       All taxpayers can avail of income tax exemptions under this section, contingent on all of them who don’t earn through gain or loss from a profession or business. Donations made by such members towards the National Poverty Eradication fund or to augment statistical / social / scientific experiments are eligible for tax benefits.

    3. Section 80GGB:

       This section allows only Indian companies to avail tax deductions, using the amount they give to a political party or electoral organization.

    4. Section 80GGC:

       Under this section, income tax exemptions can be used by taxpayers for making contributions towards a political party or trust. Artificial juridical people & local authorities are not eligible for availing such deductions under this section. 

12. Tax Deductions Under Section 80 IA:

    An avenue for all the taxpayers is given under section 80 IA for claiming income tax exemption on the industrial activity gains. These industrial organizations are subjected to telecommunication, power generation, industrial parks, SEZs, etc.

    Different subsections available under Section 80 IA are: 

    1. Section 80 IAB:

       This section can be used by the developers of Special Economic Zone(SEZ) for income tax exemptions on their profits earned through the development of SEZs. These need to be notified after 1st April 2005, to be eligible for the tax exemption.

    2. Section 80-IB:

       All taxpayers can use the provisions of this section who gain profits from different businesses like hotels, shops, theatres, multiplex, cold storage plants, conventional centers, scientific research & development, etc. 

    3. Section 80-IC:

       Taxpayers belonging to states like Himachal Pradesh, Manipur, Tripura, Arunachal Pradesh, Nagaland, Mizoram, Assam, Meghalaya & Uttaranchal can avail of income tax exemptions under this act.

    4. Section 80-ID:

       This section of tax deductions can be availed by assesses gaining from centers & hotels, subjected to business centers located in certain specific areas.

    5. Section 80-IE:

       Taxpayers who have projects in North-Eastern India can claim income tax exemptions under this Income Tax Act, subject to specific conditions.

13. Tax Deductions Under Section 80 J:22

    1. Section 80 JJA:

       This section of the Income Tax Act, 1961 is related to deductions on profits & gains earned from taxpayers’ businesses, related to collection & processing of bio-degradable wastes for the production of biological products such as biogas, etc. can avail income tax exemption of equal to 100% of the generated profit for 5 continuous years since the starting of the business.

    2. Section 80 JJAA:

       Indian companies that profit from the manufactured goods in factories can claim income tax exemption under this section. The claim can be the same as 30% of the new full-time employee’s salaries for 3 assessment years.

       Such companies’ accounts should be audited by a chartered accountant and the employers need to submit a report on return. However, employees employed for less than 300 days on a contract basis in the previous years or designated individuals in administrative posts cannot avail of this tax exemption.

14. Tax Deduction Under Section 80LA:

    International financial centers, Scheduled Banks that have offshore SEZs banking units & abroad banks can avail income tax exemptions in correspondence with the foreign countries laws equal to 100% of the first 5 years’ income & 50% of the incurred income for the 5 upcoming years based on the rules can be claimed by the assessee.

    These bodies must have permission either under the Banking Regulation Act or registration under another relevant law or the SEBI act.

15. Income Tax Deductions Under Section 80P:

    • Under certain conditions, this section offers income tax exemptions to cooperative societies on their income equal to 100% & is given to societies that earn from fishing, agricultural harvesting, cottage industries & milk supplied to milk cooperative societies by the members.

    • Cooperative societies involved in different businesses can claim income tax exemption varying from Rs. 50,000 to Rs. 1 lakh, subject to their work.

    • All cooperative societies can claim the following income tax deductions:

    • Cooperative societies income through renting the warehouses, interest on a loan to other societies & incurred from properties or securities. 

16. Tax Deduction Under Section 80QQB:

    Only local Indian authors can claim deductions up to 3 lakhs on using this scheme of Income Tax Act, 1961 from the sale of books. Royalty on scientific, artistic, literary books & diaries, journals & textbooks cannot be claimed. Royalty received by authors from an abroad country, the amount must be brought into the nation within a certain time period to avail benefits.

17. Tax Deduction Under Section 80RRB:

    Patent holders who offer tax relief to local individuals receiving money through a royalty on the patent are provided with tax incentives under this section up to Rs. 3 lakhs depending on the registered patents after the date of 31st March 2003. Individuals must bring the royalty received from overseas shores into the nation within a period of time for being eligible for tax deductions.

18. Tax Deduction Under Section 80TTA:

    Under this section, the individual assesses & Hindu Undivided Families are allowed the deductions of up to Rs. 10,000 per year on the interest on the bank savings accounts invested in India.

19. Tax Deduction Under Section 80 U:

    Under this section, local disabled assesses should have the right to claim tax deductions of up to Rs. 75,000 per annum on having a Person with Disability (PwD) certificate from a medical authority. People with severe disabilities can claim income tax exemption of up to Rs 1.25 lakhs based on the criteria met by them. A few examples include mental retardation, cerebral palsy, autism, etc.