Quick Summary
Tax Deduction reduces your taxable income, thereby lowering your tax liability. Popular deductions include Section 80C (investments up to ₹1.5 lakh), 80D (health insurance), and 80G (donations).
Tax Deduction is a reduction from the gross total income for certain investments, expenses, or contributions made during the financial year. Unlike exemptions which exclude income from taxation, deductions reduce the amount of income that is subject to tax.
Major Tax Deductions under Chapter VI-A
| Section | Description | Maximum Limit |
|---|---|---|
| 80C | Investments (PPF, ELSS, LIC, FD, etc.) | ₹1,50,000 |
| 80CCC | Pension plan contributions | Included in 80C limit |
| 80CCD(1) | NPS contribution by employee | Included in 80C limit |
| 80CCD(1B) | Additional NPS contribution | ₹50,000 (over and above 80C) |
| 80D | Health insurance premium | ₹25,000 (₹50,000 for seniors) |
| 80E | Interest on education loan | No limit (8 years) |
| 80G | Donations to specified funds | 50% or 100% of donation |
| 80TTA | Interest on savings account | ₹10,000 |
| 80TTB | Interest for senior citizens | ₹50,000 |
| 80U | Disability deduction | ₹75,000 (₹1,25,000 for severe) |
Section 80C - Popular Investment Options
- Public Provident Fund (PPF) - up to ₹1.5 lakh/year
- Equity Linked Savings Scheme (ELSS) - mutual funds with 3-year lock-in
- Life Insurance Premium - premium up to 10% of sum assured
- National Savings Certificate (NSC)
- Tax-saving Fixed Deposits - 5-year lock-in
- Sukanya Samriddhi Yojana (SSY) - for girl child
- Principal repayment of home loan
- Tuition fees for children (max 2 children)
Difference Between Deduction and Exemption
- Deduction: Reduces taxable income (applied after computing gross total income)
- Exemption: Income not taxed at all (not included in total income)
- Rebate: Direct reduction from tax liability
Key Points
- Reduces taxable income, not tax directly
- Section 80C: Up to ₹1.5 lakh for investments
- Section 80D: Health insurance up to ₹25,000
- Section 80CCD(1B): Additional ₹50,000 for NPS
- Must be claimed by filing ITR
- Available only under old tax regime