🧾 Module 3: Income Tax Deductions and Exemptions – A Beginner’s Guide
When it comes to filing your income tax returns, understanding deductions and exemptions is crucial. These tools help you reduce your taxable income, allowing you to save money legally and efficiently. In this blog, we’ll simplify the concept of deductions and exemptions and explain the most commonly used sections under the Income Tax Act.
What Are Deductions and Exemptions?
✅ Income Tax Exemptions
Exemptions refer to the portion of income that is not included in your total taxable income. These are available under specific heads like salary or income from house property.
Example: House Rent Allowance (HRA), Leave Travel Allowance (LTA), and Agricultural Income.
✅ Income Tax Deductions
Deductions are subtracted from your gross total income to arrive at the taxable income. These are often related to investments, insurance, loans, and specific expenses under various sections of the Income Tax Act.
Example: Section 80C, 80D, 80E, etc.
Key Income Tax Deductions You Should Know
🔹 Section 80C – Investments and Savings
Maximum Deduction: ₹1.5 lakh
Eligible expenses and investments:
- Life Insurance Premium (LIC)
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- Tax-saving Fixed Deposits (FDs)
- Equity Linked Saving Scheme (ELSS)
- National Savings Certificate (NSC)
- Tuition fees for children
- Principal repayment of home loan
🔹 Section 80D – Medical Insurance
- ₹25,000 for self, spouse, and children
- ₹50,000 for senior citizen parents
Covers:
- Health insurance premiums
- Preventive health check-ups (within limit)
🔹 Section 80E – Education Loan Interest
- Deduction for interest on loan taken for higher education
- No upper limit
- Available for up to 8 years from the year of repayment
🔹 Section 80TTA/80TTB – Interest on Savings Account
- 80TTA: Deduction of ₹10,000 (for non-senior citizens)
- 80TTB: Deduction of ₹50,000 (for senior citizens)
🔹 Section 24(b) – Home Loan Interest
- Deduction up to ₹2 lakh for interest on home loan (self-occupied house)
- Available under “Income from House Property”
Common Income Tax Exemptions for Salaried Individuals
🏠 House Rent Allowance (HRA)
- Exemption available if you live in a rented house
Exempt amount is calculated as the least of the following:
- Actual HRA received
- 50% of salary (metro cities) / 40% (non-metros)
- Rent paid minus 10% of salary
✈️ Leave Travel Allowance (LTA)
👨👧👦 Children’s Education & Hostel Allowance
- Education allowance: ₹100/month per child (max 2 children)
- Hostel allowance: ₹300/month per child (max 2 children)
New vs Old Tax Regime: Which Allows Deductions?
If you choose the Old Tax Regime, you can claim all these deductions and exemptions.
But under the New Tax Regime, most deductions and exemptions are not available, except for:
- Employer's contribution to NPS
- Section 80CCD(2)
- Standard deduction (₹50,000 for salaried, ₹15,000 for pensioners from FY 2023-24 onwards)
So, compare your tax liability under both regimes before filing your ITR.
Quick Tips to Maximize Your Tax Savings
- Plan your investments early in the financial year
- Keep documents of all deductions (insurance, receipts, etc.)
- Don’t forget to claim medical insurance and education loan interest
- Use tools and calculators to compare old vs new regime
Conclusion
Understanding deductions and exemptions is the first step toward effective tax planning. By leveraging the right sections like 80C, 80D, and HRA exemptions, you can significantly reduce your taxable income and increase your take-home salary.
In the next module, we’ll guide you through the process of filing your Income Tax Return (ITR) step by step.
