Crownstack's investment advice and guide

Before we talk about different types of investments, the first thing to know is why investments are needed? So apart from Savings, Tax planning is one of the major reasons that can help you in reducing tax deduction at source (i.e. TDS) and thereby, increasing your in-hand or take-home salary. The Income-tax Act, 1961 provides many deductions of your investments, savings and of some specified expenditures also that we will discuss in this document in more detail. But before that we need to know, Is the benefit of investment deductions available to all? The answer is No. Individuals who are opting for the old regime of taxation are only eligible for these investment deductions. Next point is, are the investments for tax planning necessary for all? No, Individuals who are having CTC more than INR 5,50,000/- can take advantage by making tax-saving investments. Reason is if you are having CTC of INR 5.5 lakh then after getting standard deduction of 50k, your taxable income will be 5 lakh and up to 5 lakh of taxable income, there is already no tax due to available rebate.

Let's start section-wise, what are those investments for which deduction can be claimed for tax savings, and how can you claim it. There are 2 basis on which deduction is available under different sections of the Act, like some sections allow deduction on the basis of actual payment that should be made in the current financial year, while other sections allow on the basis of accrual i.e. it will be allowed in the year to which it belongs to whether actually paid or not in that financial year.

Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc. (Section 80C)

Deduction in this Section is available for the whole of amount paid or deposited in the previous year being total of the following sums and the amount should be paid for Individual, his spouse or any child of such individual, subject to the maximum limit of INR 1,50,000/-

Payment in respect of life insurance policy
Payment in respect of deferred annuity. Provided that such annuity contract doesn't contain a provision to receive cash payment instead of annuity.
Contributions to Public Provident Fund
Contribution to a Recognized Provident Fund
Contribution to an approved Superannuation Fund
National Savings Certificate (NSC)
Unit-Linked Insurance Plans specified by the Central Government
Subscription to any units of Mutual Funds specified by CG
Payment of Tuition fees (excluding development fees, donations, etc.) by an individual to any university, college, school or other educational institution situated in India whether at the time of admission or otherwise, for full time education of any 2 of his/her children
Housing Loan Principal repayment -> Certain payments for purchase/construction of residential house property. Payment made in respect of stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee shall also be considered for deduction.
Any sum deposited in Sukanya Samriddhi Scheme
Subscription to equity shares or debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions
Fixed Deposit of not less than 5 years in any scheduled bank
Subscription to the bonds issued by the NABARD.
Deposit in an account under Senior Citizen Saving Scheme
5 year term deposit under Post Office Time Deposit Rules 1981, etc.

Deduction in respect of contribution to pension scheme of Central Government (Section 80CCD(1B))

If the individual is making any contribution to the pension scheme of CG (i.e NPS), then he is eligible to claim additional deduction of up to INR 50,000/- apart from Section 80C.

Deduction in respect of health insurance premia (Section 80D)

Basis of deduction under this section will be actual payment that should be made in the current financial year. Nature of payments covered & Maximum Amount of deduction that can be claimed are as follows:

If health insurance policy has been taken and premium has been paid for such health insurance policy in any mode other than cash
1. For Self, Spouse and dependent children (if any of such persons is not a Senior citizen) then maximum of INR 25,000/- can be claimed and If anyone is a Senior Citizen then maximum of INR 50,000/- can be claimed
2. For Parents, additional deduction can be claimed. If any of them is not Senior Citizen then maximum of INR 25,000/-, and INR 50,000/- in case of Senior Citizen can be claimed
Preventive Health checkup - maximum of INR 5,000 can be claimed and it can be paid in cash as well
If you have incurred medical expenditure in the financial year even if no health insurance policy has been taken then also, maximum amount of INR 50,000/- can be claimed provided that such expenditure should be incurred in respect of Senior Citizen only
Sometimes, people take a policy for multiple years by paying a premium in lump-sum amount, then you are eligible to take the appropriate amount (i.e. premium paid x 1 / total number of years for which premium is paid) in each year

Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability (Section 80DD)

Basis of deduction under this section will be actual payment that should be made in the current financial year. But, deduction under this section is provided for the fixed amount (i.e. INR 75,000/- or 1,25,000/-) as mentioned below irrespective of the amount paid.

If an individual, who is a resident of India, during the financial year incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability; or paid/deposited any amount under a scheme framed in this behalf by the Life Insurance Corporation or any other insurer, then individual will be allowed deduction from his Gross total income of INR 75,000/-.

If such dependant person is a person with severe disability then an amount of INR 1,25,000/- can be claimed.

Dependant can be the spouse, children, parents, brothers and sisters of the individual or any of them who are wholly or mainly dependent on the individual.

Deduction in respect of medical treatment, etc. (Section 80DDB)

Where a person, who is a resident of India, actually paid any amount for the medical treatment of specified diseases for himself or dependant, then he is allowed for the deduction of the amount actually paid or INR 40,000/- whichever is less. And, if an individual or dependant for whom expenditure has been incurred is a senior citizen, then the amount of deduction allowed will be the actual amount spent or INR 1,00,000/- whichever is less. But, this deduction can only be claimed if that individual has obtained the prescription for such medical treatment from a neurologist, an oncologist, a urologist, a hematologist, an immunologist or such other specialist, as may be prescribed.

Note:
If an individual has received any amount from the health insurance company in respect of above expenditure incurred, then deduction available under this section will also be reduced from the amount that is received from the insurance company.

Dependant can be the spouse, children, parents, brothers and sisters of the individual or any of them who are wholly or mainly dependent on the individual.

Deduction in respect of interest on loan taken for higher education (Section 80E)

If the individual has taken any loan for higher education from a Financial Institution or any specified charitable institution for himself, or spouse or child or the student for whom the individual is a legal guardian then he is eligible for the deduction of Interest amount being paid by him in the financial year. But, only Interest payment will be allowed for deduction purposes. Maximum time period for which deduction can be claimed is 8 years (i.e. Initial Assessment Year and seven assessment years immediately succeeding that) or till the individual is making payment of Interest, whichever is earlier.

Deduction in respect of purchase of electric vehicle (Section 80EEB)

If an individual has taken any loan for the purpose of electric vehicle from a financial institution, then any interest payable on such loan shall be allowed for deduction subject to the maximum limit of INR 1,50,000/-. But, there is one condition that the loan should be sanctioned during the period from 1st April 2019 to 31st March, 2023.

Deduction in respect of donations to certain funds, charitable institutions, etc. (Section 80G)

Donations to certain approved funds, trusts, charitable institutions/donations for renovation or repairs of notified temples, etc. [amount of deduction is 50 percent of net qualifying amount]
100% of qualifying donations to National Defence Fund, Prime Minister's National Relief Fund, Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND) Prime Minister's Armenia Earthquake Relief Fund, Africa (Public Contributions - India) Fund, National Children's Fund (from 1-4-2014), Government or approved association for promoting family planning, universities and approved educational institutions of national eminence, National Foundation for Communal Harmony, Chief Minister's Earthquake Relief Fund (Maharashtra), Zila Saksharta Samitis, National or State Blood Transfusion Council, Fund set up by State Government to provide medical relief to the poor, Army Central Welfare Fund, Indian Naval Benevolent Fund and Air Force Central Welfare Fund, Andhra Pradesh Chief Minister's Cyclone Relief Fund, National Illness Assistance Fund, Chief Minister's Relief Fund or the Lt. Governor's Relief Fund in respect of any State or Union Territory, National Sports Fund, National Cultural Fund, Fund for Technology Development and Application, Indian Olympic Association, etc.20, fund set up by State Government of Gujarat exclusively for providing relief to victims of earthquake in Gujarat, National Trust for Welfare of Persons with Autism, Cerebral palsy, Mental retardation and Multiple Disabilities, the Swachh Bharat Kosh and the Clean Ganga Fund and National Fund for Control of Drug Abuse [subject to certain conditions and limits]

Deduction in respect of contributions given by any person to political parties (Section 80GGC)

Any amount of contribution made by an individual to a political party or an electoral trust is eligible for deduction provided the amount should be paid in any mode other than cash. There is no max cap on deduction, you are allowed for 100% of the amount paid under this Section.

Interest on deposits in savings bank accounts (Section 80TTA), except Senior Citizens

Maximum deduction allowed to individuals (except senior citizens) is up to INR 10,000/- per year for interest on deposits in savings bank accounts. But, this deduction can be taken after adding interest from saving bank accounts in “income from other sources”.

For Senior citizens: Interest on deposits in savings bank accounts or Fixed Deposits (Section 80TTB)

Maximum deduction allowed to senior citizens is up to INR 50,000/- per year for interest on deposits in savings bank accounts or fixed deposits.

Deduction in respect of rent paid (Section 80GG) & Exemption of rent paid (Section 10(13A))

There can be 2 circumstances here: one is if you provide your rent payment details to your employer with valid proofs or supporting documents then you can take exemption of rent payment under Section 10(13A), second is if you didn't provide those details to your employer then also you are eligible for deduction under Section 80GG at the time of filing your Income Tax Return (ITR). But, the deduction available under both sections is different in terms of amount.

Section 10 (13A)

Exemption available under this section is the minimum of following:

HRA actually received
Rent paid less 10% of salary
50% of salary if you live in metro city else 40% of salary

Section 80GG

Deduction available under this section is the minimum of following:

Rent paid less 10% of total income
Five thousand rupees per month
25% of total income

Interest on Housing Loan (Section 24(b), 80EE, 80EEA)

Whenever you take out a loan for residential house property, then repayment includes 2 components i.e. principal and interest. You can get a deduction for your principal repayment under section 80C for a maximum amount of INR 1,50,000/-. But, payment should be actually made in the financial year.

Interest deduction is available under Section 24(b). If the property has been acquired or constructed with capital borrowed and such acquisition & construction is completed within 5 years from the end of financial year in which capital was borrowed, then you can claim the deduction for any interest payable on such capital to the maximum of INR 2,00,000/- and if the property has been renewed, repaired or reconstructed with the borrowed capital, then the deduction can be claimed for any interest payable to the maximum of INR 30,000/- in case the property is self-occupied. There is no maximum limit of deduction in respect of interest payable if the property is let-out.

It also provides for the deduction of pre-construction period interest but not in the same year. It is allowed from the year in which the construction is completed. Pre-construction period interest allows in 5 equal installments from the year in which construction is completed and 4 succeeding previous years.

Further, there are 2 additional sections 80EE and 80EEA that provide you the additional deduction for interest repayment.

Section 80EE

If the loan has been sanctioned by the financial institution from 1st April 2016 to 31st March 2017, the amount of loan sanctioned for acquisition of the residential house property does not exceed thirty-five lakh rupees; and the value of residential house property does not exceed fifty lakh rupees. Also, if the individual does not own any residential house property on the date of sanction of loan, then you will be allowed for a deduction of additional 50,000/- rupees.

Section 80EEA

If an individual is not eligible for 80EE deduction, and loan has been sanctioned by the financial institution from 1st April 2019 to 31st March 2022, and the stamp duty value of residential house property does not exceed forty-five lakh rupees, then the individual will be allowed for deduction of additional 1,50,000/- provided the individual does not own any residential house property on the date of sanction of loan.

Note:
Proper and valid supporting documents are must to take any deduction under the aforementioned sections.