Updated: As per amended finance act 2020
Although investments made under Section 80C does offer a major tax-saving deduction, there are other sections that you can explore to reduce tax liability. Here are some important tips about how you can save tax if you opt for an existing (old) tax regime. Click here for Income Tax slabs and tax rates for FY 2020-21 (AY2021-22)under old and new rules. For FY 2020-21,
- In addition to the overall ceiling of Rs.1.50 lakh, an investor can contribute Rs.50000/- to NPS and claim deductions under Section 80 CCD (1B). Hence the total tax benefit for investing in NPS under Section 80 CCD (1) and Section 80 CCD (1B) is Rs.2 lakh. Only an investor in the Tier I account can claim the above tax benefits.
- It is possible to claim donations with a 100% or 50% deduction. Tax rebates can be claimed on specified donations to prescribed funds and institutions. Tax benefit u/s 80G is eligible for the amount of donation within 10% of gross income. Donation in excess of 10% of gross income in a financial year is not eligible for tax exemption.
- In the financial year 2019-20, the Standard deduction for salaried persons and pensioners increased from Rs.40000/- to Rs.50000/-.
- Individuals and HUF are eligible for income tax deductions u/s 80 TTA for total interest received on savings accounts up to Rs.10, 000/- held in Banks, Post offices, and cooperative societies. Non Residents are also eligible for this deduction.
- If you are a Senior citizen, deposit interest (including SB and recurring Deposit interest) up to Rs.50000/- in a financial year is exempted from tax under Sec.80TTB. Senior Citizens whose aggregate annual deposit interest income exceeds Rs.50,000/- need to pay Income tax only for deposit interest income over and above Rs.50,000/-.
- You can claim house rent exemption and also interest deduction on housing loans simultaneously if you are living in a rented house at your place of work and the financed house in another place (Town/City).
- House rent paid up to Rs.5000/- (Rs.60000/- per annum) is deductible under section 80GG of IT act, even if the employer does not give HRA. However, it is important that the rented house should not be owned by the spouse or minor child of the claimant. However, if you live in your own house, the HRA received by you is fully taxable.
- If a flat is purchased jointly with your spouse and also repaying the housing loan jointly, then both of you can claim a proportionate deduction of up to Rs.2 lac each for the interest paid on the home loan.
- Additional deduction of Rs.1.5 lakh for interest paid on loans for affordable housing (purchase of houses up to Rs.45 lakh) borrowed up to March 31, 2020. This will come up to enhanced interest reduction of up to Rs.3.5 lakh on loans for self-occupied properties of affordable homes.
- Interest paid on a home loan taken from the employer, friend, or private lender is also eligible for tax deduction under section 24 of the IT act provided a certificate should be obtained from the lender to this effect. However, the principal repayment of such a loan is not eligible for deduction under Sec 80C.
- A deduction of Rs.25, 000 can be claimed as a deduction under sec 80D for insurance of self, spouse, and dependent children. An additional deduction for insurance of parents is available to the extent of Rs.25, 000 if parents are less than 60 years of age or Rs.50, 000/- if parents are more than 60 years old. In case, a taxpayer’s age and parents’ age is 60 years or above, the maximum deduction available under this section is to the extent of Rs.100000/- (Rs.50000+Rs.50000=100000)
- The amount spent on preventive health check-ups (maximum of Rs.5000/-.) is subsumed under the sec 80D limit. Payment for preventive health check-ups (measures are taken for disease prevention, as opposed to disease treatment like a master check-up, etc.), however, can be made in cash.
- Disability-related tax benefit in case of the dependent spouse, child, parent, or sibling who is disabled. A deduction of Rs.75000/- for partial disability and Rs.125000/- for severe disability. The full amount of deduction will be allowed, without insisting on bills/insurance premiums be paid by the income tax office.
- Tax rebate allowed on medical treatment expenditure for treatment of specified diseases like malignant cancer, or AIDS for self and dependents, the deduction allowed up to Rs.40000/-under section 80DDB
- From FY 2018-’19 onwards increase in deduction limit for medical expenditure for certain critical illnesses like malignant cancer, or AIDS increased to Rs.1 lakh for all senior citizens above 60 years under section 80 DDB.
- House rent exemption is limited to the lowest among the following.
- Rent paid less than 10% of salary (Salary means Basic + DA)
- 50% of the salary if the house is situated in Delhi, Mumbai, Kolkata, and Chennai or 40% of the salary in other cities.
- Actual HRA received
- Telephone charges including data charges reimbursed by the employer are exempt from tax.
- You can claim an income tax deduction for interest paid on an education loan availed for yourself, your spouse, or your children u/s 80E of the IT Act. The guardian appointed by the Court for a minor student is also eligible for tax deduction under the same section. One more benefit is that no upper limit for claiming a deduction either on the amount of interest paid or the rate of interest paid. The deduction can be claimed for up to 8 years or closure of the loan whichever is earlier. If the interest is paid during the moratorium period, the time limit of 8 years begins from the date of the first repayment of interest on the loan. It is important to note that the tax benefit is restricted for education loans availed from the bank, notified financial or charitable institutions.
- Securities Transaction Tax (STT) will not be levied on the value of the contract but on the difference between the strike price and market price. It will reduce effective transaction costs. At present purchaser has to pay STT levied at 0.125 of the settlement price in the option price exercised and the seller has to pay STT at the rate of 0.05% on the option premium.
- Lump-sum withdrawal of 60 %( earlier 40%) from the National Pension Scheme is now tax-free at maturity. Increase in deduction towards NPS contribution for all central government employees to 14% of basic pay from up to 10%
- In the budget announcement of 2019, holding a period of immovable property was lowered to 24 months from 36 months for the Long term capital gain (LTCG*) purpose. The base year for computing indexation shifted to April 1, 2001, from April 1, 1981. The LTCG tax is at 20% plus indexation. The short-term capital gain is taxable at the slab rate. The highest rate is 30%.
- Tax exemption on long-term capital gain on the sale of the residential house will be available for investment in up to two residential house properties located in India against one earlier. However, this option can be exercised only once in a lifetime. (The period prescribed for investing the LTCG*s in new house properties in India is either one year before or two years from the date of sale of the old house. This tax benefit is also available if the taxpayer builds a residential house within three years of selling the old house.
- The Finance act 2020 has relaxed with an amendment in section 56(2)(x) whereby in case any land or building is purchased at a value less than the stamp duty valuation, the difference is deemed as income from other sources. However as per the amendment, in case the stamp duty value does not exceed 110% of the actual consideration paid, then, there will be no deemed income in the hands of the buyer of land and building under this Section 56(2)(x). Nevertheless, in case the stamp duty value exceeds 110%, then the entire difference including the threshold exemption of 10% will be considered as income from other sources.
- In the budget 2019 announcement, a period of exemption for capital gains arising from the sale of a house for investment in startups was extended to March 31, 2021.
[Long Term Capital Gain means to gain from the sale of listed securities that are held for more than 12 months and immovable property held for more than 24 months and all other types of capital assets including debt-oriented MFs held for above 36 months. Short Term Capital Gain means to gain from the sale of listed securities that are held for less than 12 months and immovable property held for less than 24 months and all other types of capital assets including debt-oriented MFs held for less than36 months.]
To know more about income tax rules which offer various rebates and deductions click Income Tax rules which offer tax rebate and deductions under old and new tax regimes
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