Help Center> Tax Saving Investment FAQs

Tax Saving Investment FAQs

A comprehensive list of frequently asked questions on Tax Saving Investments in India.

1What is meant by deductions ?

Tax deduction refers to claims made to reduce your taxable income, arising from various investments and expenses incurred by a taxpayer. Thus, income tax deduction reduces your overall tax liability. It is a kind of tax benefit which helps you save tax. However, the amount of tax you can save depends on the type of tax benefit you claim.

2What are different types of deductions ?

  1. Most popular income tax deduction is the deduction under Section 80C which is allowed for making investments in certain specified instruments. There are many instruments in which investments can be made.
  2. Income Tax Deductions for Contribution to Pension Funds u/s 80CCC & 80CCD
  3. Income Tax Deduction under Section 80TTA for Interest on Savings Account
  4. Section 80CCG: Deduction for Investment made under an Equity Saving Scheme
  5. Section 80D: Deduction for payment of Medical Insurance Premium & Health Check-up
  6. Section 80DD & Section 80U: Income Tax Deduction for Disability
  7. Section 80DDB: Income Tax Deduction for Treatment of Specified Diseases
  8. Section 80E: Income Tax Deduction for Interest on Education Loan
  9. Income Tax Deduction for Donations under Section 80G, 80GGA, 80GGB, 80GGC
  10. Income Tax Deduction for Rent under Section 80GG

3What are deductions under section 80C (tax savings schema) ?

  1. Life insurance premium paid.
  2. Payment in respect of Non-Commutable Differed Annuity.
  3. Contribution to any Provident Fund.
  4. Contribution towards Statutory Provident fund & Recognized Provident Fund.
  5. Contribution towards 15 Years Public Provident Fund.
  6. Contribution towards an Approved Superannuation Fund.
  7. Subscription to National Savings Certificate.
  8. Deposit in Sukanya Samriddhi Account (deposit in the name of Individual or Girl child of that individual only).
  9. Contribution for participating in the Unit-Linked Insurance Plan of Unit Trust of India.
  10. Contribution for participating in the Unit-Linked Insurance Plan of LIC Mutual Fund.
  11. Payment for Notified Annuity Plan of LIC.
  12. Subscription towards notified units of Mutual Fund or UTI.
  13. Subscription towards notified Pension Fund set up by Mutual fund or UTI.
  14. Repayment of Principal amount for Housing Loan .
  15. Any sum paid as subscription to any scheme of :
  16. a) Public sector company engaged in Providing long term finance for purchase/construction of residential houses in India.
    b) housing board constituted in India for the purposes of planning, development or improvement of cities/towns.
  17. Any sum paid as Tuition Fees to any University/College/Educational Institution in India for full time Education of any Two Children of an Individual.
  18. Any Installment or part payment towards the cost of purchase / Construction of a Residential House Property to a Housing Board or Co-operative society.
  19. Amount invested in Approved Debentures of, and Equity Shares, in a public company engaged in infrastructure including power sector or units of a mutual fund proceeds of which are used for the developing, maintaining etc. of a new infrastructure facility.
  20. Fixed Deposit for a period of 5 years or more with a Scheduled Bank notified by Central Government.
  21. Subscription to any notified Bonds of NABARD.
  22. Amount deposited under senior citizens savings scheme.
  23. Amount deposited in 5 years time deposit scheme in post office.
  24. Contribution to Certain Pension Funds of LIC or any other insurer(80CCC).
  25. Contribution to National Pension system notified by Central Government(80CCD).

4What is maximum amount of deduction from 80C (tax savings schema) ?

Deduction is limited to whole of the amount paid or deposited subject to a maximum of Rs. 1,50,000. This maximum limit of Rs. 1,50,000 is the aggregate of the deduction that may be claimed under sections 80C, 80CCC and 80CCD.

Section 80CCD(2):

  1. Employer’s contribution up to 10% of basic plus DA is eligible for deduction under this section.
  2. Employer’s contribution is an additional deduction as it not part of Rs 1.5 lakh allowed under Section 80C.
  3. It is also beneficial for employer as it can claim tax benefit for its contribution by showing it as business expense in the profit and loss account.
  4. Self employed cannot claim this tax benefit.

Section 80CCD(1B):

  1. Additional exemption up to Rs 50,000 in NPS is eligible for income tax deduction.
  2. Introduced in Budget 2015, fro FY 2015-16.
  3. Taxpayers in the highest tax bracket of 30 per cent can save Rs. 15,000 by investing Rs. 50,000 in the NPS. Those in the 20 per cent tax bracket can save aroundRs. 10,000, while people in the 10 per cent tax bracket can save Rs. 5,000 per year by investing in the NPS.
  4. The additional tax benefit of 50000 is over and above the benefit of 1.5 Lakhs which can be claimed as a deduction under Section 80CCE.
  5. It is irrespective of the type of employment. So, a government employee, a private sector employee, self employed or an ordinary citizen can claim benefit of Rs 50,000 under Section 80CCD(1B).

5What is the use investing saving schemas under section of 80C ?
  1. Investment in tax saving mutual funds or Equity Linked Savings Scheme (ELSS)
  2. Investment in National Saving Certificate (NSC)
  3. Investment in pension policies (Section 80CCC)
  4. employee's contribution to National Pension Scheme (Section 80CCD-1)
  5. employer's contribution to National Pension Scheme (Section 80CCD-2)
  6. employee's contribution to National Pension Scheme (Section 80CCD-1B)
6What are the different condition to get the maximum deduction in health insurance ?

DescriptionMedical Insurance Premium paid in respect ofTotal Deduction under Sec. 80D
Self, Spouse & Dependent ChildrenParents (whether dependent or not)
No-one has attained the age of 60 yearsRs. 25,000Rs. 25,000Rs. 50,000
Assessee and his family is less than 60 years & parents are above 60 years of ageRs. 25,000Rs. 30,000Rs. 55,000
Assessee and his parents have attained the age of 60 years and aboveRs. 30,000Rs. 30,000Rs. 60,000

7What are the different types of donations ?

  1. Charity donations.
  2. Donation to political Party.
  3. Donation to scientific research.

1.Charity donations:- Donations paid to specified institutions qualify for tax deduction under section 80G but is subject to certain ceiling limits. Based on limits, we can broadly divide all eligible donations under section 80G into four categories:

  1. 100% deduction without any qualifying limit
  2. 50% deduction without any qualifying limit
  3. 100% deduction subject to qualifying limit
  4. 50% deduction subject to qualifying limit

a. Donations with 100% deduction without any qualifying limit:

  1. Prime Minister’s National Relief Fund
  2. National Defense Fund
  3. Prime Minister’s Armenia Earthquake Relief Fund
  4. The Africa (Public Contribution – India) Fund
  5. The National Foundation for Communal Harmony
  6. Approved university or educational institution of national eminence
  7. The Chief Minister’s Earthquake Relief Fund, Maharashtra
  8. Donations made to Zila Saksharta Samitis.
  9. The National Blood Transfusion Council or a State Blood Transfusion Council.
  10. The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare Fund.
  11. Army Central Welfare Fund, Indian Naval Ben. Fund, Air Force Central Welfare Fund.
  12. National Illness Assistance Fund
  13. Chief Minister’s or Lt. Governor’s Relief Fund
  14. National Sports Fund
  15. National Cultural Fund
  16. Govt./ local authority/ institution/ association towards promoting family planning
  17. Central Govt.’s Fund for Technology Development & Application
  18. National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities
  19. Indian Olympic Association/ other such notified association
  20. Andhra Pradesh Chief Minister’s Cyclone Relied Fund

b. Donations with 50% deduction without any qualifying limit:

  1. Jawaharlal Nehru Memorial Fund
  2. Prime Minister’s Drought Relief Fund
  3. National Children’s Fund
  4. Indira Gandhi Memorial Trust
  5. The Rajiv Gandhi Foundation
  6. Donations to govt./ local authority for charitable purposes (excluding family planning)
  7. Authority/ corporation having income exempt under erstwhile section or u/s 10(26BB)
  8. Donations for repair/ renovation of notified places of worship
  9. World Vision India
  10. Udavum Karangal

c. Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total income:

  1. Donations to the Government or a local authority for the purpose of promoting family planning.
  2. Sums paid by a company to Indian Olympic Association

d. Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross total income:

  1. Donation to the Government or any local authority to be utilized by them for any charitable purposes other than the purpose of promoting family planning.

Qualifying Limit:- The qualifying limits u/s 80G is 10% of the adjusted gross total income. The limit is to be applied to the adjusted gross total income. The adjusted gross total income’ for this purpose is the gross total income (i.e. the sub total of income under various heads) reduced by the following:

  1. Amount deductible under Sections 80CCC to 80U (but not Section 80G)
  2. Long-term capital gains
  3. Short term STT paid income
  4. Exempt income

2. Donation to scientific research:

  1. Any sum paid by the assessee in the previous year to a university, college or other institution which undertakes scientific research. The university/college/institution should be in the list notified by the Income Tax department.
  2. Any sum paid by the assessee in the previous year to an association or institution, which runs programmes for rural development.
  3. Any sum paid by the assessee in the previous year to a public sector company or a local authority or to an association or institution approved by the National Committee (please read the tax law to know what National Committee is), for carrying out any eligible project or scheme.
  4. Any sum paid by the assessee in the previous year to a rural development fund set up and notified by the Central Government.
  5. any sum paid by the assessee in the previous year to the National Urban Poverty Eradication Fund set up and notified by the Central Government.

Any assessee who does not have income chargeable under the head “Profits and gains of business or profession” can claim deduction under Section 80GGA. Hence, salaried employees who do not have business income can claim deduction under the section. However, employers while calculating TDS on salary cannot consider deduction under Section 80GGA. Salaried employees can submit information on contributions under Section 80GGA to the Income Tax department while filing their return and seek a tax refund, if applicable.

3. Donation to political Party: If you have contributed any amount to a recognised political party, you are eligible to claim a tax deduction ranging from 50 percent to 100 percent of the amount under Section 80GGC for individuals and Section GGB for corporate organisations. One can contribute up to 10 percent of one’s gross total income to a political party.

80GGC. In computing the total income of an assessee, being any person, except local authority and every artificial juridical person wholly or partly funded by the Government, there shall be deducted any amount of contribution made by him, in the previous year, to a political party or an electoral trust.

Explanation:—For the purposes of sections 80GGB and 80GGC, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951 (43 of 1951)

8What is meant by disability and how it is deducted from income?and what are the different types of disabilities ?

Section 80DD

  1. Individual: A dependent family member like child, spouse, parent, sibling
  2. HUF: Any member of HUF

Section 80U

  1. For the taxpayer himself

Basically, these are the disabilities which are considered by Income Tax Act:

  1. Blindness
  2. Low vision
  3. Leprosy-cured
  4. Hearing impairment
  5. Loco motor disability
  6. Mental retardation
  7. Mental illness

Here, there are two terms frequently used for the level of Disability.

  1. The person with Disability means minimum 40% of the disability from given list.
  2. The person with Severe Disability means 80% or more of the given disabilities.

Section 80DD

  1. Under this section, the individual or HUF can claim deductions when their family member is differently abled.

This deduction can be claimed in two conditions:

  1. When the person has done any spendings in the medical treatment, nursing, rehabilitation or training of the differently abled person.
  2. When there are premiums / payments deposited to any scheme formed by LIC, which is for the good of the disabled person.
  3. The deduction must be claimed by a resident Indian only.
  4. In order to claim the deductions, one needs to acquire a certificate from the medical authority and furnish the copy of the same while filing Taxes.

Tax Deduction under Section 80DD

  1. Disabled (minimum 40% of the disability) – Rs. 75,000
  2. Severely Disabled (80% or more of the disability) – Rs. 1,25,000

Section 80U

  1. This Section is only available to the Individual taxpayers. An individual who is differently abled can claim deductions for himself.
  2. The main difference between 80DD and 80U is that in 80U, there are no necessary expenses that avail the taxpayer for deduction. The taxpayer receives the deductions just on the basis of him being differently abled.
  3. The deduction must be claimed by a resident Indian only.
  4. Here too, in order to claim the deductions, one needs to acquire a certificate from the medical authority and furnish the copy of the same while filing Taxes.

Tax Deduction under Section 80U

  1. Disabled (minimum 40% of the disability) – Rs. 75,000
  2. Severely Disabled (80% or more of the disability) – Rs. 1,25,000