Feb 12, 2009

Looking Beyond 80C: Section 80 Other Tax Deductions

Everybody knows that section 80C along with section 80CCC and section 80CCD of Income Tax Act, 1961, allows a tax deduction of Rs 1 lakh from the gross total income. I’ve already given a brief overview of various tax saving options and investment avenues eligible for deductions under section 80C and also discussed the various limitations of section 80C.

But, did you know that apart from section 80C, there are many more tax deductions available under section (u/s) 80? You can avail deduction under section 80D for health insurance, section 80DD & section 80DDB for medical treatment, section 80E for educational loan, 80G for donations and 80GG for rent paid.

Here’s a list of 7 such deductions available to individuals under section 80:


Medical Based Deductions under Section 80

1. Health insurance premium under section 80D
You can claim a deduction of Rs 15,000 (RS 20,000 in case of senior citizens) under section (u/s) 80D for medical or health insurance--popularly known as mediclaim policy--premia paid on the health of yourself, spouse and dependent children.

Additionally, (from 1st April, 2008) you’re also allowed a further deduction of Rs 15,000 u/s 80D for buying health insurance policy for your parents (Rs 20,000 if either of your parents is a senior citizen) irrespective of whether they’re dependent on you or not.

Thus, if neither you nor your parents are senior citizens, you’re allowed a maximum deduction of Rs 30,000. On the other hand, if both you and your parents are senior citizens, then the maximum limit allowed under section 80D increases to Rs 40,000.

Please also note that part payment of premium is also eligible for deduction u/s 80D. For example, suppose that your parents buy a health insurance policy having an annual premium of Rs 14,000. Out of the total premium, let’s say your parents pay only Rs 5,000 and the balance of Rs 9,000 is paid by you. So, you’ll be allowed a tax deduction of Rs 9,000 under section 80D and your parents will be allowed a deduction of Rs 5,000.



2. Medical treatment of disabled dependent under section 80DD
You’re also allowed a fixed deduction of Rs 50,000 (irrespective of the actual expenses) u/s 80DD, if you happen to incur any expenditure on the medical treatment (including nursing, training & rehabilitation) of handicapped dependent (spouse, children, parents, brothers and sisters). For severe disability, the amount of deduction available is Rs 75,000.

Furthermore, section 80DD also allows deduction on insurance premium paid on certain specified life insurance policies. JEEVAN ADHAR policy of Life Insurance Corporation (LIC) qualifies for deduction under section 80DD. The policy is meant for the maintenance of handicapped dependent after the death of the insured. This is a whole life policy with no maturity value. On the death of the insured (individual depositing the money), 20% is paid in lump sum and balance is utilized to pay annuity to the handicapped dependant or the nominee for the benefit of the handicapped dependent. If the handicapped dependent dies before the insured, the amount is refunded back and is taxable in the year of receipt.

There is yet another policy of LIC (JEEVAN VISHWAS) meant for the purpose of providing for the handicapped dependents; however, it is not eligible for deduction section 80DD of the IT Act. It is a with-profit endowment plan with guaranteed and loyalty additions.

The point worth remembering is that section 80DD allows fixed deduction of Rs 50,000 / Rs 75,000 irrespective of the expenditure incurred on the medical treatment of the handicapped dependent or amount deposited in the Jeevan Adhar Policy. It might seem absurd, but it’s true.

To know the specific ailments covered and other formalities to be completed for availing deduction u/s 80DD, please read this article by Raagvamdatt.

UPDATE: As per the changes made by Budget 2009 in section 80DD, from current financial year (FY 2009-10), while the limit of Rs 50,000 for ordinary disability remains same, the fIxed limit of Rs 75,000 for severe disability stands increased to Rs 1,00,000.


3. Medical treatment of certain specified ailments under section 80DDB
You’re also allowed a deduction of actual expenditure incurred—minus any amount reimbursed by employer or by an insurance company—up to Rs 40,000 (Rs 60,000 for senior citizens) for medical treatment of certain specified diseases and ailments (e.g. AIDS, cancer, Parkinson’s disease etc.) of yourself or any dependent family member (spouse, children, parents, bothers and sisters) under section 80DDB subject to certain conditions.


4. Handicapped person under section 80U
You’re allowed a fixed deduction of Rs 50,000, if you’re suffering from any of the disabilities specified such as blindness, hearing impairment, mental retardation or illness, leprosy-cured, low vision and locomotive disability, autism and celebral palsy. For severe disability, deduction is Rs 75,000. Please note the following points for claiming deduction u/s 80U:

1. The disability pertains to you (i.e., the taxpayer) and not any of your family members.
2. You need not spend any amount on the medical treatment.
3. A certificate is required from specified medical authority.
4. For up to 40% disability, nothing is allowed; for disability ranging from 40% to less than 80% a deduction of Rs 50,000 is allowed and if the disability is 80% or more, Rs 75,000 is allowed to be deducted from your gross total income.


Finally, see this post by taxworry to know the medical certificates / forms required to claim deduction u/s 80DD, 80DDB and 80U.


Other Deductions under Section 80

5. Educational Loan under section 80E
You’re allowed a deduction u/s 80E for the repayment of loan taken (from any bank, financial institution, or approved charitable institution) for higher studies (full time studies including graduation of specified courses such as management, engineering and medicine) for yourself or any of your family members (children, spouse).

However, the deduction u/s 80E is only for the interest portion and unlike home loans, deduction for principal repayment is not allowed. Finally, deduction u/s 80E is limited to a maximum period of 8 years.


UPDATE: As per the changes made by Budget 2009, the scope of section 80E in respect of interest on loan taken for pursuing higher education is enlarged to cover all fields of study including vocational studies pursued after passing senior secondary examinations.


6. Donations under section 80G
Donations paid to specified institutions also qualify for tax deduction under section 80G but is subject to certain ceiling limits. Based on limits, we can broadly divide all eligible donations under section 80G into four categories:


a) 100% deduction without any qualifying limit (e.g., Prime Minister’s National Relief Fund).
b) 50% deduction without any qualifying limit (e.g., Indira Gandhi Memorial Trust).
c) 100% deduction subject to qualifying limit (e.g., an approved institution for promoting family planning).
d) 50% deduction subject to qualifying limit (e.g., an approved institution for charitable purpose other than promoting family planning).

The qualifying limit u/s 80G is 10% of the adjusted gross total income.


7. Rent paid under section 80GG
If you’re either self-employed or employed but not getting any HRA from your employer, you can get a deduction under section 80GG for the rent paid by you. However, unlike HRA exemption under section 10(13A) of I.T.Act, here the maximum amount allowed is only Rs 2,000 per month (Rs 24.000 annually) and is also subject to certain conditions.


So, make sure that (in addition to section 80C, 80CCC and 80CCD), you consider all the above tax concessions available to you u/s 80 while doing your tax planning.

In fact, the first course of action while doing your tax planning is to avail to all the tax breaks related to expenses (whether under section 80C or any other section such as 80E) before making any further investment commitments for tax savings under section 80. For more details, please read how to do section 80C tax planning.


Also see:

1. Section 80C – Tax Saving Options & Investment Avenues
2. 10 Smart Tips for Section 80C Tax Planning
3. ELSS: The Best Option u/s 80C
4. Health Mediclaim Insurance – 10 Practical Tips
5. Budget 2009 Tax Highlights – Impact on Individuals

6 comments:

  1. AnonymousJune 01, 2009

    Thanks for the info

    ReplyDelete
  2. AnonymousJuly 27, 2009

    I was on job only for six months during FY08-09 and received HRA. But I paid rent for my own accommodation for the whole FY. Can I include the whole year rent in the calculation for HRA exemption under section 10 (13A)? If not, can I claim for deduction for rent paid during my unemployment period under Sec 80GG? Thank you.

    ReplyDelete
  3. You can claim HRA exemption u/s 10(13A) only for first six months of the FY 08-09 during which you were employed.

    The deduction for the rent paid during next six months of FY 08-09 (the unemployment period) can’t be claimed even u/s 80GG because as per the condition mentioned under section 80GG of the IT Act, you should not be in receipt of any HRA during any part of the FY which may entitle you to deduction u/s 10 (13A).

    Section 80GG says, “In computing the total income of an assessee, not being an assessee having any income falling within clause (13A) of section 10, there shall be deducted any expenditure incurred by him in excess of ten per cent of his total income towards payment of rent…”.

    ReplyDelete
  4. I wanna kno, is car loan or any other loan taken for vehicle is also helpful in saving tax...like education loan?

    ReplyDelete
  5. As of now, under Income Tax Act you are entitled to claim tax benefits on home loans (u/s 24 and 80C) and education loans (u/s 80E). No other loan qualifies for tax concessions.

    ReplyDelete
  6. Thanks a lot for the mention.... I'm sorry, I saw it only now...

    ReplyDelete

You’re welcome to post a comment if you’d like to air your views, or if you’ve any further question to ask, but please stick to the topic and don’t forget to write your name.