It is that time of the year when everyone gets ready prior to the next financial year to take maximum benefit of income tax deductions available in the Income Tax Act. Finance Minister Arun Jaitley in the Union Budget 2017-18 has reduced the tax rate for annual income between Rs 2.5 and Rs 5 lakh to 5%. Meanwhile, a surcharge of 10% has been added on tax for annual income between Rs. 50 lakh and Rs. 1 crore. The basic income tax exemption limit remains the same at Rs. 2.5 lakh.
Other income tax rates for taxpayers include:
- A surcharge of 15% for income above Rs. 1 crore
- Rebate of up to Rs. 2,500 for taxable salary up to Rs. 3.5 lakh
- Rebate of up to Rs. 2,500 for taxable salary up to Rs. 3.5 lakh
- Education and higher education cess of 3%
So what deductions can taxpayers avail for FY2017-18?
Section 10 (13A)
If you own your home or do not pay rent, your House Rent Allowance is fully taxable. If you stay with your parents, you can pay rent to them to claim HRA benefits. HRA is calculated as minimum of:
1) Annual rent paid minus 10% of basic salary plus dearness allowance
2) Actual HRA received
3) 40% of basic and dearness allowance (50% in case of metro cities)
Section 80C
Under Section 80C, an individual can get benefits up to Rs 1.5 lakh. Employees’ Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate, tax-saving Fixed Deposits, life insurance premiums, and National Pension Scheme (NPS) qualifies for deduction. Tuition fees paid for up to 2 kids, home loan repayment, stamp duty and registration cost on the house also qualifies.
Section 80CCD (1B)
Section 80CCD (1B) was introduced 2 years ago and offers deduction up to Rs 50,000 for investment in NPS Tier 1 account. This deduction is apart from deductions available under Section 80C. An individual in 30% tax bracket can save up to Rs 15,450 of tax by investing Rs. 50,000 in NPS.
Section 24B
Under this section, interest paid up to Rs. 2 lakh on Housing Loan and up to Rs. 30,000 on home improvement loan is allowed for deduction.
Section 80D
Premiums on medical/health insurance for self, spouse, children and parents qualify for deduction. If the person is below 60 years of age, they can claim deduction of Rs 25,000, and Rs 30,000 if he is above 60 years of age. Additional deduction of Rs 25,000 is available if they have bought medical insurance for their parents, which can go up to Rs 30,000 if parents are above 60 years of age.
Section 80E
Taxpayers can claim deduction for interest paid on education loan for self, spouse or children. To be eligible, loan must have been taken from a financial institutional or approved charitable institution and for full-time higher education.
