A Complete Guide to Tax Exemption for Financial Year 2018-19
Tax planning is overwhelming for most of us. With the complex network of various sections, sub-sections, and provisions, it is crucial to completely understand tax provisions are applicable to you, and what can work for or against you. If you are losing your sleep over your taxes, look no further. We bring to you a complete guide to tax exemption for the financial year 2018-19.
Budget 2018 has created a significant impact on personal finance, in respect of investments, savings, and taxes. It is important to think beyond Section 80C to maximize your income tax benefits. Also, you must align your investments with your tax-saving instruments to get absolute benefits.
Here we have a complete list of tax deductions you can claim under the Income Tax Act, this financial year 2018-19.
Section 80C – Investments
There are approximately 14 instruments through which you can claim a deduction under Section 80C. Financial instruments like Employee Provident Fund, National Savings Certificate, Public Provident Fund, National Pension System, payment made towards children’s tuition, Life Insurance premium, ELSS, deposit in Sukanya Samriddhi Yojana, etc offer tax benefit under this section.
A deduction of ₹1,50,000 from your total income in FY 2017-18 can be claimed by an individual or a HUF, u/s 80C.
Section 80CCD – Government Pension Scheme
Under this section, you can claim a deduction for contribution made towards National Pension Scheme.
Section 80CCD (1) – Employee’s Contribution –
If you are an employee: Maximum deduction allowed is 10% of your salary.
If you are self-employed: Maximum deduction allowed is 20% of your gross total income.
Section 80CCD (1B) – Self contribution –
An additional deduction of up to ₹50,000 for investment in a Tier I NPS account. Contribution made towards Atal Pension Yojana is eligible as well.
Section 80CCD (2) – Employer’s Contribution –
An additional deduction of up to 10% of the salary of the employee, towards contribution made to employee’s pension fund. No financial limit exists on this deduction.
Section 80CCG – Equity Investments
The Rajiv Gandhi Equity Savings Scheme deduction aims to encourage investment in equity shares. Under section 80CCG, you can claim a tax deduction of ₹25,000, or up to 50% of the amount invested in equity shares, whichever is lower.
Rajiv Gandhi Equity Savings Scheme has been discontinued w.e.f April 2017. No deductions shall be available u/s 80CCG AY 2018-19 onwards. Those who invested under the scheme in FY 2016-17 will be able to claim the tax deduction until AY 2019-20.
Section 80D – Health Insurance
Tax benefit u/s 80D of ₹50,000 shall be available for senior citizens.
If you pay a premium for a Health Insurance, on behalf of your parents, an additional deduction of up to ₹20,000 (₹50,000 (less) ₹30,000) shall be available. If you fall under the tax bracket of 30%, you shall be eligible for an additional tax benefit of up to ₹6,000 (30% of ₹20,000).
In case of super senior citizens (aged above 80 years) who are uninsured, a medical expense of up to ₹30,000 shall be allowed as a deduction.
Section 80DDB – Critical Illness
Under section 80DDB tax deduction of ₹40,000 is available, for medical treatment of specified ailments, for individuals below 60 years of age. These specified ailments include AIDS, Cancer, Thalassaemia, etc.
Rule 11DD has the list of these specified ailments. A certificate from a registered doctor, in Form 10I will have to be furnished.
Tax exemption on treatment expense of specified critical illness was ₹60,000 for senior citizens and ₹80,000 for very senior citizens. This limit has been proposed to be increased to ₹1,00,000 for all senior citizens.
If an expenditure has been incurred by you for treatment of your senior citizen parents, for a specified ailment, ad additional tax deduction of ₹40,000 can be claimed.
Section 80TTA – Savings Account
Interest earned on Savings Account in post office, bank, or cooperative society, shall be exempt up to ₹10,000.
Interest earned from this account will have to be included in Other Income. Deduction claimed will have to be on the total interest earned or ₹10,000, whichever is less. This benefit is available for an individual and a HUF.
This tax benefit is not allowed on interest earned via Recurring Deposits, Fixed Deposits, or Corporate Bonds.
Section 80GG – HRA
If you are residing in a rented house, HRA is an excellent tax saving option for you. The tax benefit you will be able to avail would depend on your Basic Salary, the HRA that has been provided by your employer, the rent you pay, and your place of residing.
Section 80G – Charity & Relief Funds
Tax exemption of up to 50% of the amount paid via cash, draft, or cheque (up to ₹10,000), towards a charitable organization or relief fund can be claimed. Contribution towards specified organizations makes you eligible for 100% tax exemption.
W.e.f FY 2017-18, a donation in cash, in excess of ₹2,000, shall not be allowed as a deduction. A donation made above ₹2,000 will have to be made in any mode other than cash, to avail tax benefit.
Section 80GGB – Political Party Contribution
In respect to this section, “Political Party” refers to a political party registered u/s 29A of Representation of the People Act.
100% tax exemption is available under this section on the contribution made by a company toward an electoral trust or political parties, under section 80GGB.
Section 80E – Education Loan
Interest paid on loan for higher education post completion of your Senior Secondary Examination shall be eligible for a tax deduction claim under this section. This benefit shall be allowed on loan taken for higher education of yourself, your spouse, your children, or a student for whom you are a local guardian.
Tax deduction under this section can be availed for up to 8 years or till the payment of interest, whichever is earlier. No limit has been set on the amount of interest.
Section 56(2) – Gift Tax
If you receive a gift in the form of cash, cheque, etc, of a value of up to ₹50,000 from anybody other than a blood relative, you will not have to pay tax towards the same.
For a gift in excess of ₹50,000, the entire amount shall be taxable.
Standard Deduction of ₹40,000
A standard deduction of ₹40,000 has been introduced for employees. You will have to forego the transport allowance with deduction ₹19,200, and medical reimbursement with deduction ₹15,000.
This standard deduction will provide a benefit of ₹5,800 (₹40,000 (less) ₹34,200)
Section 24(b) – Home Loan
You can claim a tax benefit on the interest component of your home loan u/s 24(b). In case of properties that are self-occupied, deduction of up to ₹2,00,000 shall be applicable.