Not even a month is left for the announcement of full Budget 2019 and the government is all set to make effective new income tax laws that will benefit millions of taxpayers in the country.
While not many additional changes are expected in taxation rules, the government in its interim budget had introduced many tax measures that will help people get better tax rebates and limit their overall tax outgo.
The number of tax deduction limits have been increased under income tax rules that will be effective from the financial year 2019-20 or (the accounting year 2020-21). The low and middle-income group will be the biggest beneficiaries of the new tax rules.
As per the new rules, a full tax rebate applies for individual taxpayers with a net annual income up to Rs 5 lakh. This means that the income limit eligible to avail tax rebate under Section 87A of the Income Tax Act has been increased from the earlier limit of Rs 3.5 lakh to Rs 5 lakh.
This essentially implies that the maximum tax rebate under Section 87A has been increased to Rs 12,500 for qualified taxpayers from the earlier Rs 2,500. However, in case the net taxable income of the taxpayer breached Rs 5 lakh for the accounting year 2020-21, there will be no rebate under the section.
How is tax on your income calculated?
To first understand how the new taxation changes apply, one has to understand how his/her income is taxed. First, the gross income is calculated by taking into account all earnings of an individual, following which tax exempted allowances and deductions are subtracted to find out the net taxable income.
If your net taxable income up to Rs 5 lakh, you can avail 100 per cent tax rebate. But the full tax rebate can be availed by those earning gross income of Rs 6 lakh to Rs 11 lakh by planning income structure and claiming deductions from income to bring down the net taxable income to Rs 5 lakh.
Having said that, here are all the deductions that you can claim under the new income tax act rules:
Section 80(C): This is one of the most widely used income tax rules that allow individuals to invest in tax-saving instruments and reduce the net taxable income, in turn reducing total tax liability.
Under the section, a taxpayer can invest up to Rs 1.5 lakh in popular schemes like Public Provident Fund (PPF), Employees' Provident Fund, Sukanya Samriddhi Yojana, and many more.
Section 80CCD(1b): This is another section that allows taxpayers to claim a further deduction of Rs 50,000 after investing in the National Pension Scheme (NPS). Any citizen belonging to the age group 18-65 years can open an NPS account.
So if you take into account the deductions under Section 80(C) and Section 80(CCD)(1b), you are saving tax of up to Rs 2 lakh in a financial year.
Section 80CCD(2): Under this section, a taxpayer can further claim deduction on the employers' contribution made to NPS account. According to rules, you can claim a maximum discount of 10 per cent of your basic salary plus dearness allowance.
Section 80(D): Any taxpayer can also claim a deduction on total tax outgo for health insurance premium paid under the particular section. For instance, if you pay health insurance for your family including parents, you can claim a lump sum amount as deductions. For your family including wife and children, you can claim a deduction of Rs 25,000 and you can avail an additional deduction of Rs 25,000 if you pay mediclaim for your parents. If your parents are above 60 years, then you can claim a deduction of up to Rs 50,000.
Section 80(DD): If you have to take care of a dependent who is differently-abled, you can claim a deduction of Rs 75,000 if disability of the person is more than 40 per cent but less than 80 per cent under the section. If the disability is more than 80 per cent, you can claim a deduction of Rs 1,25,000. You can only claim this deduction if dependent claims deduction under Section 80(U).
Section 80U: Under this section, an individual get a deduction in taxable income if he/she is suffering from certain specified diseases.
Section 80DDB: For any kind of expenditure incurred on self or dependents for medical treatment (only certain diseases), a deduction is allowed under this section. All of the diseases are specified in Rule 11DD of the Income Tax Act. Some diseases included in the list are chronic renal failure, Parkinson's disease and many more. You can avail an additional amount of up to Rs 40,000 as a deduction.
Section 80E: Any kind of interest paid on education loan is also eligible for a deduction under the particular section of the Income Tax Act. Interest paid on education loan is deductible from your gross income. However, only education loan taken for yourself, spouse or child is eligible for deduction under this section. The deduction can be claimed for the year when repayment starts and the deduction can be availed for a maximum of eight years or till the interest is fully paid.
Section 80EE: Under this section, homebuyers can avail a deduction of Rs 50,000 on tax if they pay interest over and above the limit of Rs two lakh on an existing housing loan. However, there are certain conditions which apply in order to get a tax break.
Section 80G: Any kind of contributions made towards charity or welfare institutions also qualify for deduction under Section 80G of the Income Tax Act. This section offers a massive rebate of up to Rs 50 per cent or 100 per cent of the donation in accordance with the limits mentioned in the Income Tax Act. To avail deduction under the section, a receipt for the donation should be produced along with address, PAN, registration number of the trust, name of the donor and the donated amount.
Individuals should note that cash donations exceeding Rs 2,000 do not qualify for any kind of tax deduction.
Section 80GG: All taxpayers living in rented accommodation without claiming HRA benefit can claim deduction under Section 80GG. For availing deduction under this section, you should be living on rent and if you own a house in the city, it cannot be assessed as "self-occupied" property.
Section 80TTA: Under this section, a deduction up to Rs 10,000 is available to individuals below 60 years on interest earned from savings account held with the bank and/or post office.
Section 80TTB: This section only applies to senior citizens (above 60 years). A deduction of up to Rs 50,000 can be claimed on interest earned from bank and post office deposits.
These are some of the key tax-saving instruments that can help you drastically reduce your net taxable income. If you end up reducing your net taxable income of up to Rs 5,00,000, you will be required to zero taxes. However, this does not mean that you will avoid filing ITR as the tax exemption limit still remains at Rs 2.5 lakh per annum and Rs 3 lakh for senior citizens.
