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Important tips to claim full tax rebate on income up to Rs.10 lakh

The interim financial budget of 2019-2020 provided a full tax rebate to individuals earning up to Rs.5 lakh p.a. Keeping that slab in mind, getting a full deduction on an annual salary of Rs.6.5 lakh seems like a cakewalk. However, the new revisions also allow taxpayers earning up to Rs.10 lakh p.a. to pay Rs.0 in taxes without any hassles.

By investing in the right place, an individual earning even Rs.10.5 lakh can walk tax-free. Though it sounds like an exaggerated promise, investing in numerous tax exempted investments can reduce your taxable income substantially. The goal is to bring down the taxable income to Rs.5 lakh p.a. However, before making any uninformed investments, it is imperative to understand the various deductible investment mentioned under the Income Tax Act of India, 1961.

Tax deductions under the Income Tax Act, 1961

Mentioned below are some important deductible investments under the Income Tax Act of India, 1961:

  • Section 80C: Section 80C allows taxpayers to claim tax benefits of up to Rs.1.5 lakh on various investments like mediclaim policies, life insurance policies, PPF, etc.
  • Section 80CCC: Under this section, individuals can claim tax deductions against premiums paid for life insurance policies.
  • Section 80CCD: This section allows deductions to taxpayers who contribute to pension funds like the National Pension Scheme (NPS).
  • Section 80 TTA: Taxpayers can claim tax deduction on the interest accrued in their savings account.
  • Section 80GG: This section allows taxpayers to claim deductions on house rent allowance.
  • Section 80E: If an individual has taken an education loan for self, spouse, or children, he/she is eligible to claim deductions under this section.
  • Section 80EE: Deductions can be claimed on home loans. However, tax benefits can only be claimed if the taxpayer is a first-time homeowner.
  • Section 80D: A deduction can be claimed under this section against the premium paid for medical insurance policies.
  • Section 80G: Donations towards a social cause are tax exempt under this section.

Tax benefits on an income of up to Rs.10 lakh

The interim budget raised the income threshold for rebate from Rs.3.5 lakh to Rs.5 lakh. With the revised limit, taxpayers can make wise investments to easily bring their income tax down. Making adequate investments can bring the taxable income down to Rs.5 lakh and by doing so, taxpayers can receive the benefits of a full tax rebate.

According to the present slabs, with an income of Rs.10 lakh, individuals are required to pay 30% as taxes. However, by following these tips, they can significantly save on income taxes:

  • Investing in insurance policies, mediclaim, etc., under section 80C can give you a deduction of up to Rs.1.5 lakh.
  • A standard deduction of Rs.50,000 is available to salaried employees.
  • By investing in the national pension scheme, you can claim a deduction of Rs.50,000.
  • If you are repaying a house loan or an education loan, you can claim a deduction of up to Rs. 2 lakh.
  • Section 80D allows taxpayers to claim deductions of Rs.25,000 against premium paid for mediclaim policies.
  • Additional Rs.25,000 can be claimed if you pay the premium for your parents’ mediclaim policies. The deduction is Rs.30,000 if your parents are senior citizens.
  • If you have made donations towards any social cause, you can claim a deduction under section 80G.

Illustrated below is an example of how the deductions will work:

ParticularsAmount
IncomeRs.10 lakh
Standard deductionRs.50,000
Deductions under 80CRs.1.5 lakh
Deductions under 80DMediclaim premium paid for selfMediclaim premium paid for parents
Rs.25,000Rs.25,000
National pension schemeRs.50,000
Deductions on housing loan interestRs.2 lakh
Total deductionsRs.5 lakh
Total taxable incomeRs.5 lakh
Income tax payableRs.12,500
Tax rebate according to budget 2019-2020-Rs.12,500
Total tax paid0

The above-mentioned example illustrates how the deductions can be calculated to lower the taxable income. All the investment categories might not be applicable to some taxpayers. Therefore, it is advisable to understand one’s needs first and then invest.

Additional exemptions

Apart from the above-mentioned categories, taxpayers can also claim these lesser-known deductions under the Income Tax Act, 1961:

  • Expenses incurred during medical treatments for certain chronic illnesses like AIDs, cancer, and neurological diseases are eligible for tax deductions under section 80DDB. Deductions up to Rs.1 lakh can be claimed.
  • A deduction of up to Rs.1.25 lakh is applicable for individuals with disability.
  • Interest paid on your second home loan is eligible for deductions. This is applicable if your first house is rented out and the income is taxable.
  • If you took a home loan and are still living in a rented house, you are eligible for both home loan and house rent allowance benefits.

Conclusion:

Buying a mediclaim policy and contributing to NPS are things that most taxpayers can invest in as both of these categories protect one’s future apart from providing tax benefits. It is a wise decision to understand your needs first before investing in something solely based on the handsome tax benefits it offers. Keeping the basic idea of lowering the taxable income in mind, you can work around different investments to find the ones that suit you the best.

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