How to Reduce Taxable Income in India

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We are going to discuss “How to reduce Taxable Income in India”.

First let us understand the two ways which reduces the taxable income and those are:

  1. Exemptions
  2. Deductions

Now the question is what do you mean by ‘Exemptions‘ and ‘Deductions‘.Is there any difference?

Yes, there is difference between exemptions and deductions.Let us understand the difference.

Exemptions:

The incomes which are exempt under section 10 will not be included for computing total income.So exemptions are not taken into account while calculating your total taxable income.They are shown in Income Tax Return only for reporting purpose and to check whether the incomes are exempted as per the conditions given in that particular section.

Deductions:

On the other hand, incomes from which deductions are allowable under chapter VI-A will first be included in the gross total income (GTI) and then the deductions will be allowed from gross total income (GTI). Many deductions are given under section 80 like section 80C,80D,80E,etc.The important point to be noted here is that if there is no gross total income, then no deductions will be permissible.

Summary list of “Exemptions” given under section 10 which can help you to reduce your taxable income:

Under the Head ‘Salaries’:

Section No.Description of Section
Section 10(5)Leave travel concession
Section 10(7)Allowance payable outside India by the Government to a citizen of India
Section 10(10)Gratuity
Section 10(10A)Payment in commutation of pension
Section 10(10AA)Leave Encashment
Section 10(10B)Retrenchment Compensation
Section 10(10C)Voluntary Retirement Receipts
Section 10(10CC)Income-tax paid by employer
Section 10(11)Payment from Provident Fund
Section 10(12)Accumulated balance due or payable from recognised provident fund
Section 10(13)Payment from Superannuation Fund
Section 10(13A)House Rent Allowance
Section 10(14)Special Allowance or benefit to meet expenses relating to duties or personal expenses
Section 10(45)Specified allowances and perquisites paid to chairman or a retired chairman or any other member or retired member of UPSC
How to Reduce Taxable Income in India

Under the Head ‘Income from Other Sources’:

Section No.Description of Section
Section 10(15)Interest income arising to certain persons
Section 10(19)Family pension received by widow/ children/ nominated heirs of armed forces members

Under the Head ‘Capital Gains’

Section No.Description of Section
Section 10(33)Capital gain on transfer of a unit of Unit Scheme
Section 10(34A)Income received on buy-back of unlisted shares of domestic company
Section 10(37)Capital gain on compulsory acquisition of agricultural land within specified urban limits
Section 10(37A)Transfer of specified capital asset under Land Pooling Scheme
Section 10(43)Income received in transaction of reverse mortgage

Under the head ‘Income of other Persons Included in Assessee’s Total Income’

Section No.Description of Section
Section 10(32)Exemption in respect of minor’s income included in the hands of parent

Exemptions for ‘Non Residents’:

For detailed information of exemptions available to Non Residents, click here.

Other Exemptions:

Section No.Description of Section
Section 10(10D)Receipts from LIC
Section 10(12A)Payment from NPS Trust to an assessee on closure of his account or on his opting out of the pension scheme
Section 10(12B)Payment from NPS Trust to an employee on partial withdrawal
Section 10(23C)Income of certain funds or institutions
Section 10(23DA)Income of Securitisation trusts
Section 10(23FBA)Income of Investment Fund
Section 10(23FBB)Income of Unit holders of Investment Fund
Sections 10(23FC),10(23FCA) and 10(23FD)Income of business trusts
How to Reduce Taxable Income in India

Summary list of “Deductions” given under section 80 which can help you to reduce your taxable income:

There are many sections in which you can invest to take benefit of deductions from the gross total income.Those sections are discussed below:

Section 80C:

Section 80C provides for a deduction from the Gross Total Income, of savings in specified modes of investments. The deduction under section 80C is available only to an individual or HUF. The maximum permissible deduction under section 80C is Rs. 1,50,000.

To know the specified modes of investments, Click here.

Section 80CCD(1B):

Section 80CCD provides deduction in respect of contribution made to the pension scheme notified by the Central Government.After the quota of Rs.150,000 is exhausted under section 80C, you can invest Rs.50,000 under section 80CCD(1B) to get the benefit of deduction upto Rs.200,000. i.e.Section 80C(150,000)+Section 80CCD(1B)(50,000).

Section 80D:

Under Section 80D of Income Tax Act, you can claim a tax deduction for premiums paid for your family members and your health insurance. This section allows you to claim a maximum deduction of Rs 25,000 per year on premiums paid for yourself, spouse, and your children.

To get the detailed information of section 80D, click here.

Section 80E:

Deduction in respect of interest loan taken for higher education.The amount paid as interest for an education loan for self, spouse, children, or any student to whom you are a legal guardian, can be claimed as a tax deduction under this section.

There is no maximum limit specified in this section.You can take deduction of total interest paid on a loan in a financial year.

To get the detailed information about section 80E, Click here.

Section 24:

Taxpayers can take benefit of interest paid on loan taken for self occupied house property.Taxpayers can claim maximum deduction of Rs.200,000 under this section.

If the house property is rented,then there is no maximum limit.You can take benefit of entire interest paid in a financial year.

Section 80DD:

If you are paying for medical treatment of disabled who is dependent on you,then you can take maximum deduction of Rs.75,000 and in case of severe disability (i.e. person with 80% or more disability) the deduction will be Rs.1,25,000.

To know more in details, Click here.

Section 80G:

If you have donated some amount to any charitable trusts or temple in a financial year,then you can take benefit of deduction u/s 80G.

To avail the tax deduction under this section, you should donate by cheque, as starting from FY 17-18 cash donation above Rs 2,000 do not qualify as deductions.

To know more about section 80G, Click Here.

Section 80EE:

Section 80EE provides additional deduction in respect of interest on loan taken by an individual for acquisition of residential house property from any financial institution.

To know more about section 80EE, Click here.

Section 80EEA:

If you have not owned any other house property (first-time homebuyer), then you can claim a deduction of up to Rs 1,50,000 under Section 80EEA. This amount is above the tax benefit of Rs 2 lakh for repayment of home loan interest under Section 24.

To know more about section 80EEA, Click here.

Section 80GG:

Assessee, who is not in receipt of HRA qualifying for exemption under section 10(13A) from employer and who pays rent for accommodation occupied by him for residential purposes can claim deduction subject to least of following:

  • Actual rent paid minus 10% of the total income of the assessee before allowing the deduction
  • 25% of such total income (arrived at after making all deductions under Chapter VI-A but before making any deduction under this section)
  • Amount calculated at Rs.5,000 p.m.

Section 80TTA:

Deduction under this section can be claimed up to Rs 10,000 in respect of interest income received from saving bank account with a banking company, a post office or a co-operative society engaged in the business of banking.

Section 80TTB:

A senior citizen whose gross total income includes income by way of interest on deposits with banking company,co-operative society and Post Office can claim deduction upto Rs.50,000 or actual interest,whichever is lower.

Exemptions of Capital Gains u/s 54:

If you have sold any house property in a financial year and you don’t know about capital gains,then you must read this article.There are many exemptions under the head ‘capital gains’.

I hope you now understood “How to Reduce Taxable Income in India“.If you have any doubts about any section,feel free to ask in the comments section or email us at taxkidateam@gmail.com

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