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Understanding Tax Deduction Will Help You with Tax Reduction

Submitted by admin on June 4th, 2024

Tax planning is integral to comprehensive financial planning. Proper tax planning helps individuals with tax liability reduction and saving optimization. The Indian Income Tax Act, under its different sections, provides multiple deductions to help taxpayers save on their taxes.

In this article, we will discuss four important sections 80C, 80CCC, 80CCD, and 80D. All these provide considerable tax benefits. Understanding tax deductions will help individuals optimize their tax savings during robust and comprehensive financial planning.  Let’s now dive into the details of all the aforementioned sections and explore the possibilities to ease off your tax burden.

Section 80C Tax Deductions

Under Section 80C of the Income Tax Act, the Indians can explore a wide breadth of deductions that can reduce their tax burden to a significant extent. Some key deductions are listed below:

Life Insurance Premiums: Premiums paid for life insurance policies, including endowment plans, term insurance, and unit-linked insurance plans (ULIPs) qualify for deduction under Section 80C.

Employee Provident Fund (EPF): Under this section, contributions towards EPF by salaried employees qualify for deduction.

Public Provident Fund (PPF): Under section 80C, contributions made to a PPF account are eligible for deduction. The maturity proceeds and interest earned are also tax-free.

Equity-Linked Savings Scheme (ELSS): ELSS are equity-based mutual funds that have a lock-in period of three years, providing double benefits of tax saving and potential returns. Any contribution towards ELSS qualifies for deduction under Section 80C.

Other 80C deductions include principal amount repayment on home loan, children’s tuition fees, NPS investment, National Saving Certificate, Sukanya Samriddhi Yojana etc. Tax payers can explore all these to reduce their tax liabilities under section 80C.

Section 80CCC Deductions

Under Section 80CCC, the Indians can enjoy deductions for their contributions towards certain pension plans. Some key points are:

Pension Plans: Contributions towards eligible pension plans, including annuity plans from insurance companies, qualify for deduction under Section 80CCC. However, tax deductions under Sections 80C, 80CCC, and 80CCD(1) are limited to only Rs. 1.5 lakhs.

Section 80CCD Deductions

Under Section 80CCD, tax deductions are available on contributions towards the National Pension Scheme (NPS). Let’s discuss it in details:

NPS Contributions: Under Section 80CCD, contributions by both employer and employee made towards NPS qualify for deduction. However, the deduction is subject to certain conditions and limits specified by the government.

NPS Tax Benefits under Sec.80CCD (1): The upper limit of the tax benefit is Rs. 1.5 lakh, such as the limit under Section 80C. The eligible NPS contribution is 10% of employee contribution or 20% of annual income, whichever is lower.

Under section 80CCD (1B) and 80CCD (2), you can enjoy additional tax benefits with contribution made to NPS

Section 80D also applies to deductions for health insurance premiums. You can optimize your tax savings the following way:

Health Insurance Premiums: Health insurance premiums that you pay for yourself, your parents, spouse, children qualify for deduction under Section 80D. The upper limit for tax deductions varies, depending on the type of the policy and the age of the insured persons.