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Tax Planning Series I – Deductions under Income Tax Act


It’s the last quarter of the financial year and the time has come to turn your attention to tax planning and filing tax returns for the year gone by. All earning people are busy in doing Google the words like – Tax Planning, Tax Saving, Tax Filing. In this article we try to focus on tax benefits available under various sections under IT Act.

Tax Slab: First and foremost every individual should know in which tax slab he falls. The Income Tax Department announces the tax slab for different categories of individuals every year. The current tax structure is as follows:

Chart 1:


Sec 80C: Deduction in respect of Life Insurance Premium, ELSS, PPF, NSC, Repayment of Principal. etc.

Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs.1 lakh. This means that your income gets reduced by this investment amount (up to Rs.1 lakh), and you end up paying no tax on it at all! This benefit is available to everyone, irrespective of their income levels. Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs.1 lakh, you save tax of Rs.30000.

Chart 2:


*Interest income/Annuity is taxable as per marginal tax bracket. Maximum Investment deduction under section 80C, **NPS – Tier 1 Account

Sec 80D: Medical Insurance Premium

Health insurance has become an important element in one’s life owing to increasing medical costs these days and uncertain environment. Hence Income Tax also realizes the same and gives tax benefit under Section 80D towards premium paid for medical insurance.


As it is rightly said, prevention is better than cure, and this year individuals can claim tax incentive under section 80D up to Rs.15000, if one undertakes a preventive heath checkup for self, spouse, dependent children, or parents. However the overall limit under section 80D is Rs.15000, which is inclusive of health insurance and health checkup.

Sec 80E: Deduction in respect of Interest on Loan for Higher Education

The ever-increasing education cost is one of the biggest worry in today’s world. With the help of banking industry, most of the students do avail education loan to go for higher studies. Accordingly to the respite of students, income tax laws allow you to claim interest paid by you in respect of an education loan against your taxable income without any upper limit.


Sec 80G: Donations in respect to Charitable Institutions

As successful members of the community, we have a responsibility to help those that are less fortunate and contribute to the common good. Hence to support donation and charity and upliftment of less fortunate people, donations made to certain funds or charitable institutions are eligible for deduction under Sec 80G of the Income Tax Act, 1961. For eg.: If an individual gives donation to Prime Minister’s National Relief Fund, etc. he gets up to 100% deduction without any limit. Similarly if he gives donation to Prime Minister’s Drought Relief Fund he gets exemption up to 50%.

Section 24L: Interest on Housing Loan

The interest component on home loan is considered as an expense under the head of “Income from Housing Property.” Individual can claim deduction up to Rs.150000 as interest expense paid. The interest expense paid will be shown as negative income from housing property and will be deducted from total income.

In a nutshell, Income Tax Department encourages investors to save and invest and also save tax while doing so. With effective tax planning, investors can save a good amount of money as well as create wealth over long term and secure themselves against any unfortunate event.


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Published on:29 Jan, 2013

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