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| April 24, 2024

Understanding Tax Deductions: What You Can and Can't Claim

Tax deductions by definition are claims made to reduce a taxable income. It arises from various investments and expenses incurred by a taxpayer. An income tax deduction can reduce your overall tax liability. It is a kind of tax benefit which you can claim to reduce the amount of your income that is subject to tax. This lets you save and invest money in other areas of your interest.

Simply put, tax deductions help us save money on the income subject to taxation and tax exemptions are incomes not subject to income tax. The difference is tax deduction is applicable to a wide range of expenses and investments. Whereas tax exemptions are specific to certain types of income.

Types of Tax Deductions in India

There are many types of tax deductions that you can avail in India such as on medical insurance premiums, home loan EMIs, bank fixed deposits, etc. The Indian Income Tax Act provides many provisions for investment options and forms of expenditure which you can use to get reductions on your taxable income. Some examples of different tax deduction options include:

  • Contribution to the Public Provident Fund
  • Investments in mutual funds and equity-linked savings schemes
  • Donating to charitable trusts
  • Premium Payments towards Life Insurance
  • Opening an account under the Sukanya Samriddhi Scheme

In order to claim tax deductions one has to start investing towards the end of the financial year.

Tax Deductions That You Can Claim Under IT Act

Section 80D: Medical Expenditure and Insurance Premium

You can claim tax deductions on medical expenses for the money that you have paid for medical insurance premiums for yourself, your family and your dependent parents. But there are some constrictions for example, the limit for Section 80D deduction is Rs. 25,000 for premiums paid for self or family.

Section 80C: Deductions on Investments

Section 80C allows taxpayers to reduce taxable income by making investments such as in mutual funds or incurring eligible expenses. The maximum deduction that can be claimed under Section 80C is up to Rs.150,000 from the Gross total income. There are many kinds of schemes that one can invest in to claim tax deductions. Some of them are equity-linked schemes, debt funds, balanced funds, liquid funds, systematic investment plans, etc. A mutual fund is one of the ideal kinds of investments best suited for investors who want to take advantage of the growth in equities and avail the income tax benefits under Section 80C.

Suggested Read: Best Tax Saving Investments Under Section 80C

Section 80G: Deduction on Donations

If you are wondering what is the tax deduction offered under Section 80G of the Income Tax, it is a deduction of some percentage of the amount donated. This can be with or without restriction, it varies based on the receiving charitable organisation. To support your claim you must have documents such as the registration number of the trust and duly stamped receipts which have details such as name, address, amount donated, PAN number of the trust, etc.

Section 80E: Deduction for Loan for Education

The Income Tax Act provides the benefit of tax deductions on interest paid on education loans. To claim this tax deduction the student must take the loan from a bank or a non-banking financial institution himself, by his spouse or children. The tax deduction in this case begins from the time when the student starts repaying the loan till the time of the tenure.

Conditions Under Which You Can’t Claim Tax Deduction

You need to follow certain conditions in order to claim tax deductions for example if you are a home buyer, you can claim tax deductions on the interest of the home loan. This can happen only if you do not have any residential property on the day of sanction of the loan and other such conditions. Following are some more examples of conditions under which you can not claim tax deductions:

  • You can't claim tax benefits under Section 80 of the Income Tax Act if you are utilising funds to mortgage property.
  • You can not claim tax deduction under Section 80G if you do not have the donation certificate given by the charitable institution or NGO to which you have donated.
  • Even though you can avail tax exemptions for more than one health insurance policy under Sec 80D. But if it is for your children and they aren’t dependent, you cannot avail of tax deductions on their health insurance premiums and preventive health check-ups under Sec 80D. But your children can avail of tax deductions under Section 80D on their overall income.
  • Companies, partnership firms, and LLPs cannot avail of the benefit of a tax deduction on investments under Section 80C.

Income tax deductions offer many opportunities for saving tax for the salaried class. But you need to take care of some limitations before filing for deductions, you can take financial assistance for awareness of these policies.

Muthoot Finance is a non-banking financial company that provides mutual funds, ELSS, and other tax-saving schemes. These schemes and many more such schemes are eligible for tax deduction under section 80 of the Income Tax Act. At Muthoot Finance one can also avail of other services such as corporate loans, SME loans, gold loans, personal loans, money transfers, insurance, etc.

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