Due to the introduction of new tax regime in the Budget 2020, many are not confused which are the Income Tax Deductions are available for them. Let us see the complete list of Income Tax Deductions FY 2020-21 under both old or new tax regime.
Tax Planning is an important part of financial planning. However, while investing or choosing the deductions, our idea should be to concentrate at first on our financial goals rather than just concentrating on tax saving. Hence, understanding the available options is very much important.
Income Tax Slab Rates for FY 2020-21 AY 2021-22
You may be aware that during Budget 2020, Government introduced the two types of tax regimes. As per that, the income tax slabs are as below.
List of Income Tax Deductions FY 2020-21 – Under New / Old Tax Regime
Let us now discuss the list of income tax deductions FY 2020 – 21. I will divide them as new and old tax regime for your simplicity.
List of Income Tax Deductions FY 2020-21 under New Tax Regime
I have already written a detailed post on this, where I mentioned that which deductions are not available under new tax regime. You can refer the same at “New Tax Regime – Complete list of exemptions and deductions not allowed“. In this post, I am concentrating on the available deductions.
# Section 80CCD(2)
Under this section, employer contribution on account of the employee in notified pension schemes like EPF, NPS, and/or Super Annuation Account can be claimed up to Rs.7.5 lakh limit.
An employer can contribute an amount equal to 12% of the employee’s basic monthly salary to his/her EPF account. Similarly, an employer can contribute an amount equal to 10% of the employee’s basic salary to the Tier-I account of NPS (For Central Government Employees it is now 14% of Basic+DA effective from 1st April 2019). In a superannuation account, an employer can contribute a maximum of Rs 1.5 lakh exempted from tax in a financial year.
Refer the detailed post on NPS Tax Benefits at “NPS Tax Benefits 2020 – Sec.80CCD(1), 80CCD(2) and 80CCD(1B)“.
The Budget 2020 restricted the tax-exempt superannuation, NPS and EPF account contribution by the employer to maximum of Rs 7.5 lakh in a financial year. Further, the budget states that any interest or gains earned from the excess contribution will also be taxable in the hands of an employee.
# Section 10(15)(i)
Interest received on post office savings account balance is exempted up to Rs 3,500 under section 10(15)(i) of the Income-tax Act. The exemption limit is Rs.7,000 in case of joint savings account.
Gratuity is tax-exempt up to Rs 20 lakh in a lifetime for non-government employees. For government employees, all gratuity received is tax-exempt, irrespective of the amount received by them. (Refer my post “Gratuity – New Limit, Eligibility, Formula, Taxation and Calculator“)
Below benefits up to certain threshold limits (if any) are allowed under new tax regime as well;
- Commutation of pension
- Leave encashment on retirement
- Retrenchment compensation
- VRS benefits
- NPS withdrawal benefits
- Education scholarships
- Payments of awards instituted in the public interest
# Interest on EPF Account, SSY and PPF
The interest received from the EPF account continues to be exempted from tax in the new tax regime as well as the old tax regime.
The Interest and maturity amount received on the Sukanya Samriddhi account, PPF account are tax-free in both old and new tax regimes.
Individuals having taxable income of up to Rs.5 lakh will be eligible for tax rebate under section 87A up to Rs 12,500, thereby making zero tax payable in the new tax regime.
# Conveyance Allowance
You can claim income tax exemption for conveyance, travel, and other allowances given by your employers under the new tax regime as well.
List of Income Tax Deductions FY 2020-21 under Old Tax Regime
Let us now discuss the list of income tax deductions FY 2020-21 under the old tax regime. Before proceeding further, first, let us understand the difference between deductions and exemptions.
Exemption :- It is nothing but an income which is not subject to tax. There are certain exemptions which are applicable only towards certain heads of income. Hence, you have to be cautious while claiming such exemptions.
There are mainly five sources of incomes which IT Department categorized and they are Salary income, Business of Professional Income, Income from House Property, Income from Capital Gains and Income from Other Sources.
Take for example like HRA, Gratuity can be claimed as tax-exempt against your salary income. Agriculture income, dividend income, or Sec.54 of IT act against long term capital gains on the sale of the property.
Income Tax Deductions means you may deduct the amount that is eligible for reducing your tax liability. Income Tax Deductions can be deducted from the Gross Total Income. There are various options of investing or expenditure, which can be claimed as Tax Deductions.
Allowances available under old tax regime:-
# Mobile/Telephone Reimbursement
If your employer offering you the mobile/telephone connection or internet connection which requires for work, then you can claim 100% of such cost. However, you have to produce a bill. Only the postpaid connections are allowed for reimbursement.
# Leave Travel Allowance
The bills for your travel against LTA can be claimed for exemption. It is allowed to be claimed twice in a block of four years. The current block is 2014 to 2017. You can carry forward your unclaimed LTA to the next year. You can request your employer to not deduct tax on it and allow you to claim it next year.
# Entertainment Allowances
You may be getting this allowance. However, the exemption is available only for Government employees. The amount of exemption is least of the following.
a) Rs 5,000
b) 1/5th of salary (excluding any allowance, benefits or other perquisites)
c) Actual entertainment allowance received
# House Rent Allowance (HRA)
This is the famous exemption which is used by many salaried individuals. However, the wrong belief is that whatever the rent they pay is actually exempted from their income. The reality is different. The amount of exemption is least of the following.
a) Actual HRA Received
b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras)
c) Rent paid minus 10% of salary
(Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission)
# Children Education Allowance
If your employer providing this allowance, then you can take exemption up to Rs.100 per month per child (maximum of up to 2 children). Therefore, monthly you can save Rs.200 from this allowance. The exemption may seem so low. But why to pay the tax?
# Hostel Expenditure Allowance-If your employer providing this allowance, then you can take exemption Up to Rs. 300 per month per child up to a maximum of 2 children is exempt. Therefore, you can save around a maximum of Rs.600 from this allowance.
# Conveyance Allowance
This is a different allowance than a transport allowance. It is the expenditure granted to an employee to meet the expenses on conveyance in performing his official duties. There is no limit for this. If such conveyance allowance is Rs.5,000 a month, then the whole allowance is exempt. Hence, you may this may be exempt to the extent of expenditure incurred for official purposes.
# Any Allowance to meet the cost of travel on tour or on transfer
Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.
# Allowance to meet the cost of travel on tour or on transfer
Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.
# Daily Allowance
If you are not placed in normal duty place, then your employer may provide you such allowance. The employee can claim exempt to the extent of expenditure incurred for official purposes.
These are the major allowances, which can be utilized to save tax on salary income. There are few other allowances also to claim the exemption. But many of such allowances are not so famous. Hence, I left them to list.
Deductions available under old tax regime:-
The complete of sections can be listed as below.
# Standard Deduction of Rs.50,000
Actually, I have to put this under Deductions. However, this standard deduction replaced the existing allowances. Hence, I placed it here for better understanding.
Earlier you used to claim Rs.15,000 under Medical Allowance and Travel Allowance. With effect from FY 2018-19, you can claim the direct Rs.40,000 deduction instead of these two allowances. However, the same is increased now to Rs.50,000 from FY 2019-20 and the same is applicable for FY 2020-21.
This deduction obviously for salaried and pensioners. This is irrespective of the amount of taxable salary you will be receiving to get a deduction of Rs.50,000 or taxable salary, whichever is less.
Hence, let us assume for FY 2019-20, you worked only for a few days. Your taxable salary is Rs.50,000. In such a scenario, you can directly claim the deduction of Rs.50,000. However, if your salary is less than Rs.40,000 (say Rs.20,000), then you have to claim only Rs.20,000 but not Rs.50,000.
# Section 80C
This is the famous section which often used by all of salaried. The maximum limit for the current year is Rs.1,50,000. Therefore, up to Rs.1,50,000, you can save tax on salary income from this section alone. The different investments you do and can also be claimed under Sec.80C are listed below.
- Life Insurance premium (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).
- EPF-Employee contribution can be claimed for deduction.
- Public Provident Fund (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).
- National Savings Certificate (NSC).
- Sukanya Samriddhi Account
- ELSS or Tax Saving Mutual Funds.
- Senior Citizen Savings Scheme.
- 5-Years Post Office or Bank Deposits.
- The tuition fee of kids.
- Principal payment towards the home loan.
- Stamp duty and registration cost of the house.
- Any contribution towards NPS Tier 2 Account by Government employees is also eligible for deductions under Sec.80C.
Deduction under Sec.80CCC is available only for individuals. Contribution to an annuity plan of the LIC of India or any other insurer for receiving the pension. Do remember that the amount should be paid or deposited out of income chargeable to tax.
The maximum amount deductible under Sec.80CCC is Rs.1.5 lakh. Do remember that this is also the part of the combined limit of Rs.1.5 lakh available under Sec.80C, Sec.80CCC, and Sec.80CCD(1).
- The maximum benefit available is Rs.1.5 lakh (including Sec.80C limit).
- An individual’s maximum 20% of annual income (Earlier it was 10% but after Budget 2017, it increased to 20%) or an employees (10% of Basic+DA) contribution will be eligible for deduction.
- As I said above, this section will form the part of Sec.80C limit.
- There is a misconception among many that there is no upper limit for this section. However, the limit is least of 3 conditions. 1) Amount contributed by an employer, 2) 10% of Basic+DA (14% of Government Employees) and 3) Gross Total Income.
- This is an additional deduction which will not form the part of Sec.80C limit.
- The deduction under this section will not be eligible for self-employed.
NPS Tax Benefits under Sec.80CCD (1B)
- This is the additional tax benefit of up to Rs.50,000 eligible for an income tax deduction and was introduced in the Budget 2015
- Introduced in Budget 2015. One can avail the benefit of this Sect.80CCD (1B) from FY 2015-16.
- Both self-employed and employees are eligible for availing this deduction.
- This is over and above Sec.80CCD (1).
I explained all three sections of NPS (Sec.80CCD1, Sec.80CCD2 and Sec.80CCD(1B) in below image for your reference.
You can also refer my latest post on the changes “NPS Tax Benefits 2019 – Sec.80CCD(1), 80CCD(2) and 80CCD(1B)“.
NOTE:- PLEASE NOTE THAT THE COMBINED LIMIT OF DEDUCTION UNDER SEC.80C, SEC.80CCC AND SEC.80CCD(1) TOGETHER CAN NOT EXCEED RS.1,50,000 FOR FY 2020-21.
Deduction under this section is available if you satisfy the following conditions.
- The taxpayer should be an individual (resident, NRI or Foreign Citizen) or HUF.
- Payment should be made out of income chargeable to tax.
- Payment should be in NON-CASH mode (for preventive health check up, you can pay either through cash or non-cash mode).
Changes from Budget 2018-
- In Budget 2018, the maximum tax deduction limit for senior citizens under Sec.80D is raised to Rs.50,000. The earlier limit was Rs.30,000.
- In case of single premium health insurance policies having a cover of more than one year, it is proposed that the deduction shall be allowed on a proportionate basis for the number of years for which health insurance cover is provided, subject to the specified monetary limit.
I will try to summarize the whole benefit from the below image.
A resident individual or HUF is allowed to claim the deduction under Sec.80DD. You can claim the deduction if you incurred an expenditure for medical treatment, training, and rehabilitation of dependent relative (being a person with a disability).
A deduction can also be claimed if an individual or HUF deposited or paid for any approved scheme of LIC (or any other insurance) or UTI for the maintenance of such a dependent relative.
Here, dependent means spouse, children, parents, brothers, and sisters, who is wholly and mainly dependent upon the individual.
You can claim fixed duction of Rs.75,000 under this section. A higher deduction of Rs.1,25,000 is available if such dependent relative is suffering from severe disability.
An Individual’s of HUFs expenses actually paid for medical treatment of specified diseases and ailments subject to certain conditions can be claimed under this section.
The maximum deduction is Rs. 40,000. This can also be claimed on behalf of the dependents. The tax deduction limit under this section for Senior Citizens and very Senior Citizens (above 80 years) is now revised to Rs 1,00,000.
With effect from the assessment year 2016-17, the taxpayer shall be required to obtain a prescription from a specialist doctor (not necessarily from a doctor working in a Government hospital) for availing this deduction.
You can claim the deduction for the medical treatment of self, spouse, children, parents brothers, and sisters of the individual.
The ailments covered under this section are as below.
# Neurological Diseases where the disability level has been certified to be of 40% and above;
(b) Dystonia Musculorum Deformans
(c) Motor Neuron Disease
(h) Parkinson’s Disease
# Malignant Cancers
# Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;
# Chronic Renal Failure
# Hematological disorders
An individual can claim deduction under Sec.80E. If the loan is taken by an individual for any study in India or outside India, then they can claim the deduction. The interest part of the loan on such education loan can be claimed for the deduction for pursuing individual’s own education or for the education of his relatives (Spouse, children or any student for whom the individual is a legal guardian).
The entire interest is deductible in the year in which the individual starts to pay interest on the loan and subsequent 7 years or until interest is paid in full (i.e for a total 8 years). But do remember that interest should be paid out of the income of chargeable to tax.
Along with tax deductions under Section 80C and 24b, an individual can claim up to Rs 1.5 lakh under Section 80EEA from FY 2019-20. The same is continued for FY 2020-21. However, there are certain conditions are there for the same, and they are as below:-
- The home loan should have been sanctioned between 1st April, 2019 to 31st March 2020.
- The Stamp duty value of the property should not exceed 45 Lakhs.
- Taxpayer should not own any other residential property on the date of loan sanction.
- This tax benefit will be available from 1st April 2020 (AY 2020-21) and till the end of the home loan tenure (closure).
- The total interest deduction is now Rs. 3.5 lakh (Rs 2 Lakh +
- Rs 1.5 Lakh).
Note that the deduction under Section 80EEA is available for home loans from banks and approved financial institutions only. To claim tax benefit under Section 24, you should have received possession of your house (interest paid before possession is eligible for deduction over the next 5 years in 5 equal installments). Section 80EEA do not impose any requirement of possession or completion of construction. Therefore, Section 80EEA provides you immediate tax relief even if you have purchased an under-construction property.
Both resident Indians and non-resident Indians (NRIs) can claim the deduction u.s 80EEA.
A Tax deduction of up to Rs 1.5 lakh can be claimed on Interest paid on Loans taken to purchase Electronic Vehicles.
Donations to certain approved funds, trusts, charitable institutions/donations for renovation or repairs of notified temples, etc can be claimed as a deduction under this section. This deduction can only be claimed when the contribution made by cheque or draft or in cash. In-kind contributions like food material, clothes, medicines etc. do not qualify for deduction under this section.
The donations made to any Political party can be claimed under section 80GGC.
From FY 2017-18, the limit of deduction under section 80G / 80GGC for donations made in cash is reduced from current Rs 10,000 to Rs 2,000 only.
If you wish to donate to any political party of your choice, then you are allowed to donate up to Rs.2,000 only in cash. However, if you wish to donate more than Rs.2,000, then you can donate it using Electoral Bonds.
I have written a complete post on this section. Refer “Section 80GG Deduction-Get Tax Benefit on rent paid if not getting HRA !!!“. I will give you a brief about this section as below.
This section only applies to those who have not availed HRA in their salary or not claiming the deduction on their rent in any of the other sections of income tax. Below are a few conditions to avail the deduction under this section.
- This section is only applicable to Individual or HUF.
- Taxpayers may be either salaried or self-employed. However, must not be getting HRA.
- Tax Payer himself or spouse/Minor Child/HUF of which he is a member should not own any accommodation at a place where he is doing a job or business.
- If Tax Payer owns a house at a place other than the place noted above, then the concession in respect of the self-occupied property is not claimed by him [Under Section 23 (2) (a) or 23 (4) (a)].
- Tax Payer has to file a declaration in Form No.10BA regarding the expenditure incurred by him towards the payment of rent.
How much amount of deduction one can avail under Sec. 80GG?
If the above five conditions are satisfied, the amount deductible under Section 80GG is LEAST OF THE FOLLOWING.
- Rs.5, 000 per month;
- 25% of total income of taxpayer for the year; or
- Rent Paid less 10% of total income (Rent Paid-10% of Total Income).
A deduction of up to Rs.10,000 can be claimed by an individual or HUB in respect of any income by the way of interest from a savings account with a bank, from a savings account with a co-operative society carrying on the business of banking or from a savings account with a post office but from FDs, RDs or other Term Deposits). From FY 2018-19, this benefit will not be available for late Income Tax filers.
This section is for Senior Citizens (Aged 60 years and above at any time during the financial year. The interest income earned from Bank FDs, RDs (including Post Office), will be exempt up to Rs.50,000.
This deduction can be claimed under new Section 80TTB. However, if the taxpayer claimed deducted under Sec.80TTB, then he can not claim the deductions under existing 80TTA.
To claim tax benefits under Sec.80U, the taxpayer should be an individual and resident of India. If he is suffering from 40% or more than 40% of any disability, then he can claim a tax deduction.
You can claim the fixed deduction of Rs.75,000. a higher deduction of Rs.1,25,000 is allowed in respect of a person with a severe disability (i.e. having a disability of 80% or above).
# Sec.24 (B)
The interest part of your home loan EMI will be claimed under this section. The maximum limit for the self-occupied property is Rs.2,00,000 per year (even if you have multiple houses). For let-out property, earlier the entire interest payment of home loan (Loss from House Property) can be allowed to set off against any other income source without any limit. However, effective from FY 2017-18, this set-off now limited to Rs.2 lakh per individual (irrespective of the number of properties you are holding).
The unclaimed loss if any will be carried forward to be set off against house property income of subsequent 8 years. In most of cases, this can be treated as DEAD LOSS.
No tax on notional rent on second Self-occupied house has been proposed in the Budget 2019. Hence, you can now hold two Self-occupied properties and don’t have to show the rental income from the second self-occupied property as notional rent. This is with effective from FY 2019-20.
# Rebate under Sec.87A
The tax rebate of Rs.12,500 for individuals with income of up to Rs 5 Lakh has been proposed in Budget 2019. This was the biggest change proposed in Budget 2019. I have written a detailed post on this. You can refer the same for more clarity. Refer the same at “Revised Tax Rebate under Sec.87A after Budget 2019“.
To avail this benefit, there are certain conditions and they are as below.
- The taxpayer must be a resident individual.
- Your Total Income (Less Deductions from 80C to 80U) is equal to or less than Rs.5,00,000.
- The rebate is the 100% of income tax on such income or Rs.12,500 (whichever is less).
Conclusion:- The above List of Income Tax Deductions FY 2020-21 – Under New / Old Tax Regime may not be full. However, I tried to cover all the important deductions available. Hope this may be helpful for you all.
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