Income Tax Planning: A Study

of
Tax Saving Instruments
Savita,
Lecturer in Pt. Nakiram Sharma Government College, M. D. University, Rohtak
Lokesh Gautam,
Senior Manager, legal and Secretarial, Realtech Group, New Delhi
ABSTRACT
Tax planning is an essential part of our financial
planning. Efficient tax planning enables us to reduce our
tax liability to the minimum. This
is done by legitimately
taking advantage of all tax exemptions, deductions rebates
and allowances while ensuring that your investments are
in line with their long
-
term goals.
The purpose of the study
is to find out the most suitable and popular tax saving
instrument used to save tax and also to examine the
amount saved by using that instrument. Over all findings
reveals that the most adopted tax saving instrument is Life
Insurance policy, which got the first rank in this study and
the second most adopted t
ax saving instrument is
Provident Fund.
Keywords
Tax, Tax saving Instruments, Tax Planning, Tax
Management, Tax Evasion and Tax Avoidance
TAX PLANNING: AN INTRODUCTION
In other words all arrangements by which the tax is saved
by ways and means, which comply with the legal
obligation and requirements and are not colorable devices
or tactics to meet the letters of law but not the sprite
behind these, would constitute tax p
lanning. Tax planning
should not be done with an intent to defraud the revenue,
All transactions entered into by an assessee could be
legally correct, yet on the whole these transactions may be
devised to defraud the revenue. All such devices where
status
is followed in strict words but actually spirit behind
the statute is marred would be termed as colorable devices
and they do not form part of the tax planning. All
transactions in respects of tax planning must be in
according with the true spirit of statu
te and should be
correct in form and substance.
The form and substance of a transaction is real test of any
tax
-
planning device. The form of transaction, as it appears
superficially and the real intention behind such transaction
may remain concealed. Sub
stance of a transaction refers to
lifting the veil of legal documents and ascertaining the
intention of parties behind the transaction.
Tax planning is the arrangement of ones affairs in such a
manner that the tax planner may either reduce the incident
o
f tax wholly or reduce it to maximum possible extent as
may be permissible with in the framework of the taxation
land. It does not amount to evasion of tax. It is an act of
prudence and farsightedness on the part of the taxpayer
who is entitle to reduce th
e burden of his tax liability to
the maximum possible extent under the existing law. Tax
planning ensures not only accruals of tax benefit with in
the four corners of law, but it also ensures that the tax
obligations are properly discharged to avoid penal
provision.
A.
Tax Evasion And Tax Avoidance
Tax Evasion
: It refers to a situation where a person try to
reduce his tax liability by deliberately suppressing the
income or by inflating the expenditure showing the
income lower than the actual income and
resorting to
various types of deliberate manipulations. An assessee
guilty of tax evasion is punishable under the relevant law.
Tax evasion may involve stating an untrue statement
knowingly, submitting misleading documents, suppression
of facts, not mainta
ining proper accounts of income earned
(if required under the law) omission of material facts in
assessments. An assessee, who dishonestly claims the
benefit under the statute by making false statements,
would be guilty of tax evasion.
Tax avoidance
: The
line of demarcation between tax
planning and tax avoidance is very thin and blurred. There
could be element of mollified motive involved in the tax
avoidance also. Any planning which, through done strictly
according to legal requirements defeats the basic
intention
of the legislature behind the statute could be termed as
instance of tax avoidance. It is usually done by adjusting
the affair in such a manner the there is no infringement of
taxation laws and b taking full advantage of the loopholes
there in so
as to attract the least incidence of tax.
B.
Tax Planning Excludes
Tax Planning is not tax evasion. It involves sensible
planning of your income sources and investments. It
is not tax evasion, which is illegal under Indian
laws.
Tax Planning is not just p
utting your money blindly
into any 80C investments.
Tax Planning is not difficult. Tax Planning is easy.
It can be practiced by everyone and with a very
little time commitment as long as one is organized
with their finances.
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C.
Types of Tax Planning
The
tax planning exercise ranges from devising a model
for specific transaction as well as for systematic corporate
planning. These are;
Short and long range tax planning:
Short range planning refers to year
-
to
-
year
planning to achieve some specific or limited objective. For
example, an individual assessee whose income is like to
register unusual growth in a particular year as compared to
the preceding year, may plan to subs
cribe to the
PPF/NSCs with in the prescribed limits in order to enjoy
substantive tax relief. By investing in such a way, he is not
making permanent commitment but is substantially saving
in the tax
Long range planning on the other hand involves
enterin
g in to activates, which may not pay off
immediately, For example, when an assessee transfers his
equity shares to his minor son he knows that the income
from the shares will be clubbed with his own income, but
clubbing would also cease after minor attains
majority.
Permissive tax planning:
Permissive tax planning is tax planning under the
express provisions of tax laws. Tax laws of our country
offer many exemptions and incentives.
Purposive Tax planning
:
Purposive tax planning is based on the measures,
w
hich circumvent the law. The permissive tax planning
has the express sanction of the statute while the purposive
tax planning does not carry such sanctions, For example,
under section 60 to 65 of the income tax.1961 the income
of the other persons is clubb
ed in the income of the
assessee. If the assessee is in a position to plan in such a
way that these provisions do not get attracted, such a plan
would work in favor of the tax payer because it would
increase his disposable resources. Such a tax plan could
be
termed as Purposive Tax Planning.
D.
Tax management
Tax management is an internal part of the tax planning. It
takes necessary precautions to comply with the legal
formalities to avail the tax exemption/ deductions, rebates
or relief as are contempts
in the scheme of tax planning.
Tax management plays a vital role in
calming
allowance,
deductions and tax exemptions by complying with the
required conditions. For example, Where an assessee
follows mercantile system of accounting, the claim of
expenses sh
ould be made, subject to the provisions of
section 43B, on accrual bases, if the assessee fails to make
such a claim, such expenses can not be deducted in
subsequent years. Similarly, the specified deductions
under section 80IA, section 80JJA, etc., cannot
be allowed
by the assessing officer
suo motu
. Tax management also
protects an assessee against penalty and prosecution by
discharging tax obligations in time.
Thus, the study of tax planning is incomplete without tax
management. Tax planning with out the study of tax
management is like knowing the medicine with out
knowing how to administer it.
2.
THE POPULAR INVESTMENT
OPTIONS
PPF (with post offices/banks), statutory provident
fund (deducted and paid by the employees).
Life insurance premium (with the LIC or other
private insurers).
Unit
-
linked insurance (UTI & mutual funds).
Equity
-
linked saving schemes.
National Saving Cer
tificates.
Infrastructure bonds.
Home loans.
3.
TAX SAVING INSTRUMENTS
Deduction under section 80C is allowed only to individual
or HUF, up to a maximum limit of 1,00,000 Rs. and the
deduction is allowed only when the amount has actually
been paid by the
assesseee.
Following amount paid or deposited are allowed as
deduction u/s 80C:
Contribution / subscription to PPF, NSC, NSS,
ULIP, ELSS
Fixed Deposit with any schedule bank for at least
5 years
Any sum deposited as five years time deposit in
an account
under the Post Office Time Deposit
A.
Equity Linked Saving Schemes
ELSS is an instrument sold by mutual funds for the
specific purpose of enabling taxpayers to save their taxes.
The proceeds from ELSS are mostly invested in the stock
market so that the
investors get the benefit of appreciation
in stock prices, thereby making the stock market work for
investors. The tax deduction for ELSS is available under
section 80C of the Income Tax Act 1961.
B.
Life and Medical Insurance Plans
Life Insurance Policies
have long been the most popular
tax saving instruments among taxpayers. Insurance
policies offer twin advantage for tax deductions on
premium paid and insurance cover for the insurer and his
family in the event of a financially debilitating event such
as a
ccident, death, etc. The premium paid on life insurance
policies qualify for tax deductions under section 80C,
subject to a maximum of Rs.1 lakh per annum. Most
companies offering Life Insurance also offer medical
insurance policies as well as pension plan
s which offer tax
deduction under section 80D.
Deduction is allowed to an individual/HUF for payment
towards Medical Insurance Premium or to any
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contribution made to the central Government health
Scheme by any mode other than cash.
Maximum 15,000 (For in
surance of individual,
spouse, dependent children) or 20,000 in case of senior
citizen, and
Maximum 15,000 (For insurance of parents) or
20,000 if parents are senior citizen.
C.
Housing Loan
Repayment of principal amount of loan taken for
purchase/constructi
on of residential house property from
central/state Government, Bank, LIC, National Housing
Bank or from employer (where employer is statutory
corporation, public company, university, college, or local
authority or co
-
operative society) under section 80C.
Public Provident Fund
:
The contributions made to the Employees provident fund
(EPF) and Public Provident Fund (PPF) are also eligible
for tax deductions under section 80C.While the
contribution paid to EPF and PPF by the employees are
subject to the overal
l ceiling of Rs.1 Lakh under section
80C.
D.
National Savings Certificate
:
It can be bought at any post offices in the country. While
there is no upper limit for investment, the tax deduction on
NSC is available subject to overall limit of Rs.1 lakh under
se
ction 80C
.
E.
Term Deposits and Bonds
:
Many of the commercial banks have fixed deposit
schemes, which qualify for tax deductions. These deposits
have a lock
-
in
-
period of five years. Investments in these
deposits are subject to the overall ceiling limit of Rs
.1 lakh
per annum under section 80C.
There are other specified expenses such as registration
charges and stamp duty paid on house property, tuition
fees for childrens education, among others, which qualify
for deductions under section 80C. Under other sections,
expenses like conveyance allow
ance; food coupons etc.
also qualify for deductions. There are also special
deductions/concessions for senior and disabled tax payers.
4.
RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the
problem. The study of the research design is descriptive in
nature because it throws light on relationship between age
group and income level on tax saving amount. Research
methodology for the prese
nt study is as follows:
A.
Objectives Of The Study
The purpose of the study is to find out the most suitable
tax saving instrument used to save tax and also to examine
the amount saved by using that instrument.
B.
Sample Design
The present study is based on
convenience
-
cum
-
stratified
sampling. Three heads of occupation have been taken as a
sample and two sub
-
occupations have been identified from
heads shown in table N0. 1.
C.
Sample Unit
The scope of the tax includes the following areas,
(a).
Business class
(b).
Service class
(c).
Others, like commission agents
The persons includes in this study are of different age
groups and various income groups. The area of the study
covers Haryana and Delhi/NCR, but for the purpose of
collecting primary information form
respondents the study
has been limited to three heads of income tax. From 2
heads, 2 sub occupations have been selected. While
selecting three heads enough care has been taken to see
that this sample represents the whole of universe.
Table 1
-
Sample Unit
Heads
Occupation
Sample
Salary
Teachers
15
Railway Employees
15
Business &
Profession
Shopkeepers
10
Advocates
10
Others
Commission Agents
20
Total
70
Source

based on primary data

On the basis of above
-
mentioned five occupations selected
from three main heads. The total sample size of
respondents is 70, which constitutes 15 teachers, 15
railway employees, 10 shopkeepers, 10 Advocates and 20
commission Agent
s.
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D.
Analysis of the study
General information:
Figure 1. Gender
In the given figure X
-
axis represent Gender of respondents
while Y
-
axis represents the total number of respondents.
The total numbers of respondents are 70 in which there are
53 male & 17 female respondents. The percentage of
male & female respondents
is 75.8 % & 24.2 %
respectively.
Figure 2. Geographical distribution
In the given figure X
-
axis represent the Geographical
distribution of study respondents while Y
-
axis represents
the total number of respondents. The locations of the
respondents are, 35 from Haryana & 35 from Delhi/NCR
having an equal percentage of 50% eac
h.
Figure 3. Occupation
location
35
35
0
5
10
15
20
25
30
35
40
haryana
delhi/ncr
categories
no.of respondents
location
Occupations
15
15
10
10
20
0
5
10
15
20
25
Teachers
Railway
employees
shopkeepers
Advocates
Commission
Agents
sample category
No.of respondent
SEX
53
17
0
10
20
30
40
50
60
male
female
No.of respondents
Series1

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In the given table X
-
axis represent the category of
occupations respondents while Y
-
axis represents the total
number of respondents. The total respondents are further
div
ided in to six classes, which includes 15 teachers
(21.4%), 15 railway employees (21.4%), 10 shopkeepers
(14.2%), 10 Advocates (14.2%), 20 Commission agents
(28.4%).
Figure 4. Age Group
In
the given figure No. 4 X
-
axis represent the age groups
of respondents while Y
-
axis represents the total Number
of respondents. The age of the respondents are classified
in to five groups, In which 17 respondents (24.2%) are
from the age group of 20
-
30, 21
respondents (30%) are
from the age group of 30
-
40, 11 respondents (15.71%) are
from the age group of 40
-
50, 18 respondents (25.7%) are
from the age group of 50
-
60, 3 respondents (4.2%) are
from the age group of 60
-
70.
Income Group
Data was collected from
various professionals, which
belongs with different Income group. Following figure
shows Income wise description of respondents
-
Figure 5. Income Group
In the given figure No. 5 X
-
axis represent the income
groups of respondents while Y
-
axis represents the total
number of respondents. The respondents below the income
2 lakh are 30 (42.8%), between the incomes of 2 to 5 lakh
are 30 (42.8%), between the inco
mes of 5 to 10 lakh are 7
(10%) and the income more then 10 lakh are 3 (4.28%).
17
21
11
18
3
0
5
10
15
20
25
No. of
respondent
1
Age
20-30
30-40
40-50
50-60
60-70
30
30
7
3
0
5
10
15
20
25
30
no.of
respondent
1
income
Income group
<2 lakhs
2-5 lakhs
5-10 lakhs
<10 lakhs
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Investment in Tax Saving Instruments
Figure 6. Amount invest in Tax saving Investment
In the given figure
No. 6 X
-
axis represent the tax saving
amount of respondents while Y
-
axis represents the total
number of respondent. There are 23 respondents (32.8%),
who save less then Rs. 10,000, 18 respondents (25.7%),
who save between Rs. 10,000 to 30,000, 3 respondent
s
(4.2%), who save between Rs. 30,000 to 50,000, 6
respondents (8.57%), who save between Rs. 50,000 to
70,000, and 20 respondents (28.57%), who save between
Rs. 70,000 to 90,000.
Long term Investment In tax Saving Instrument
In the given figure No. 7 X
-
ax
is represent the investment
in a long
-
term tax saving instruments while Y
-
axis
represents the total number of respondent. There are 44
respondents (62.8%), who ensures that their investment in
tax saving instruments are aligned to their long term
financial
goals, 8 respondents (11.4%) are saying no and
18 respondents (25.8%) dont know about this.
Figure 7. Long term Investment In TSI
Tax saving investment
23
18
3
6
20
0
5
10
15
20
25
1
Tax saving amount in Rs.
no. of respondents
<10,000
10,000-30,000
30,000-50,000
50,000-70,000
70,000-90,000
44
8
18
0
5
10
15
20
25
30
35
40
45
50
yes
no
don't know
investment in a long term tax saving instruments
no.of respondents
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Preferred Tax Saving Instruments
Table 2. Preferred Tax saving Instruments
Source
-
based on primary data
According to these responses, rank is given to various tax
saving instruments. The respondents preferred life
insurance as the best tax saving instrument and ranked as
One. Provident fund is the II
nd
highest ranked tax saving
instrument while respondents ranked Fixed Deposits as
III
rd
. Home Loan and Education Loan are the IV
th
highest
preferred tax saving instruments. National Saving
Certificates ranked as V
th
. Respondents preferred Unit
Linked P
lans as the VI
th
and Health Insurance as VII
th
.
Equity Linked Saving Scheme and Infra Bonds are ranked
as VIII
th
and IX
th
respectively.
Cross tabulation analysis between Age group/ Income group and Tax Saving
Instruments
Table 3
-
Analysis of tax saving amount with various age groups
Tax
Saving
amount (in
Thousands)
<10
10
-
30
30
-
50
50
-
70
70
-
90
Age
(In years)
20
-
30
11
*
4
1
0
1
30
-
40
4
7
*
0
4
6
40
-
50
3
3
1
0
4
*
50
-
60
3
4
1
2
8
*
60
-
70
2
*
0
0
0
1
Source
-
based on primary data
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*
Mode
The rows in table 3 represent age groups while the
columns represent tax saving amount. There are 11
respondents in the 20 to 30 age group, who saves less then
Rs. 10,000 and so on. There are 4 respondents in the 30 to
40 age group, who saves between Rs. 1
0,000 to 30,000
and so on. There are 3 respondents in the 40 to 50 age
group, who saves between Rs. 30,000 to 50,000 and so on.
There are 3 respondents in the 50 to 60 age group, who
saves between Rs. 50,000 to 70,000 and so on. There are 2
respondents in
the 60 to 70 age group, who saves between
Rs. 70,000 to 90,000 and so on.
Table 4
-
Analysis of tax saving amount with various Income groups
Source
-
based on primary data
*
Mode
The rows represent income groups while the columns
represent tax saving amount. There are 18 respondents in
the income group of less then Rs. 2 lakhs, who saves less
then Rs. 10,000 and so on. There are 5 respondents in the
income group of Rs. 2 lakh to 5 lakhs, who saves between
Rs. 10,000 to 30,000 and s
o on. There are 0 respondent in
the income group of Rs. 5 to 10 lakh, who saves between
Rs. 30,000 to 50,000 and so on. There are 0 respondent in
the income group of more than Rs. 10 lakhs, who saves
between Rs. 50,000 to 70,000 and so on.
5
. FINDING AND
SUGGESTIONS
(a). On the bases of this study, the respondents rank
various tax saving instruments according to their priority
of saving tax. The most adopted tax saving instrument is
Life Insurance policy, which got the first rank in this
study. The second most adopted
tax saving instrument is
Provident Fund. Further, the third choice is Tax Saving
Fixed Deposits. After that Home/Education Loans,
National Saving certificates, Unit Linked Insurance Plans,
Health Insurance Plans and Equity Linked Saving
Schemes respective
ly. The instrument, which is least
adopted, as tax saving instrument is Infrastructure Bonds,
which got the ninth rank in this study.
(b).
On an analysis of tax saving amount with various
age groups, it is found that, between the age group of 20 to
30 and
60 to 70, the tax saving amount is less then Rs.
10,000, which shows that saving is very low in young age
and old age. Where as, between the age group of 30 to 40,
the tax saving amount increases between Rs. 10,000 to
30,000. Further, the tax saving amoun
t is between Rs.
70,000 to 90,000 of the age groups between 40 to50 and
50 to 60, which shows the highest income saved of this
study.
(c).
On an analysis of tax saving amount with various
income groups, it is found that with the income of less
then Rs. 2 l
akhs, the tax saving amount is less then Rs.
10,000. Further, with the increase in income such as
between Rs. 2 to 5 lakhs, 5 to 10 lakhs and more than ten
lakhs, the tax saving amount is between Rs. 70,000 to
90,000. Which means that higher the income, hi
gher the
savings.
6. BIBLIOGRAPHY
[1.]
Banks, J., Andrew Dilnot and Sarah Tanner (1997):
Taxing Household Saving: What Role for the New
Individual Savings Account? Commentary No. 66,
London: The Institute for Fiscal Studies.
[2.]
Capital Tax Group (1989): Neut
rality in the
Taxation of Savings: An Extended Role for PEPs,
Commentary No. 17, London: Institute for Fiscal
Studies.
[3.]
Chelliah, Raja J. (1996): An Agenda for
Tax
Saving
amount
(in
thousands)
<10
10
-
30
30
-
50
50
-
70
70
-
90
Income
(in
lakhs)
<2
18
*
11
0
0
1
2
-
5
5
7
2
5
11
*
5
-
10
0
0
1
1
5
*
> 10
0
0
0
0
3
*

Changes in Income Tax Rules:

1. The tax rate for income between Rs 2.5 lakh to Rs 5 lakhs has been reduced to 5% from 10%

2. 10% Surcharge introduced for Income between Rs 50 Lakhs to Rs 1 crore

3. Tax Rebate under Section 87A reduced to Rs 2,500 for income up to Rs 3.5 Lakhs

4. Tax exemption under RGESS (Rajiv Gandhi Equity Scheme) has been discontinued from FY
2017-18

Also Read: Income Tax Slabs for FY 2017-18 (AY 2018-19)

5. Loss from House/Property capped at Rs 2 Lakh irrespective if the house is rented or self-
occupied
6. NPS tax deduction for self-employed increased to 20% of gross income

Mentioning Some Points I am frequently asked

1. There is NO tax benefit on Infrastructure Bonds

2. There is NO separate tax slab for Men & Women

For Details of changes read: 21 changes in Income Tax laws from April 1, 2017

You can download the tax planning eBook for FY 2017-18 by clicking the link below. As
stated it covers all the income tax sections available for salaried and business tax payers:

Download Tax Planning eBook for FY 2017-18 (AY 2018-19) 2.76 MB

Download

We give a brief of all the tax saving sections below:

1. Section 80C/80CCC/80CCD
These 3 are the most popular sections for tax saving and have lot of options to save tax. The
maximum exemption combining all the above sections is Rs 1.5 lakhs. 80CCC deals with the
pension products while 80CCD includes Central Government Employee Pension Scheme.

You can choose from the following for tax saving investments:

1. Employee/ Voluntary Provident Fund (EPF/VPF)

2. PPF (Public Provident fund)
3. Sukanya Samriddhi Account
4. National Saving Certificate (NSC)
5. Senior Citizens Saving Scheme (SCSS)
6. 5 years Tax Saving Fixed Deposit in banks/post offices
7. Life Insurance Premium
8. Pension Plans from Life Insurance or Mutual Funds
9. NPS
10. Equity Linked Saving Scheme (ELSS popularly known as Tax Saving Mutual Funds)
11. Central Government Employee Pension Scheme
12. Principal Payment on Home Loan
13. Stamp Duty and registration of the House
14. Tuition Fee for 2 children

We have done a comprehensive analysis of all the above available options and you can choose
which is the best for you.
Know More: Which is the Best Tax Saving Investments for you u/s 80C?

2. Section 80CCD(1B) Investment in NPS

Budget 2015 has allowed additional exemption of Rs 50,000 for investment in NPS. This is
continued this year too. We have done a complete analysis which you can read by clicking the
link below.

Invest or Not: Should you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?

3. Payment of interest on Home Loan (Section 24/80EE)

The interest paid up to Rs 2 lakhs on home loan for self-occupied or rented home is exempted u/s
24. Earlier there was NO limit on interest deduction on rented property. Budget 2017 has
changed this and now the tax exemption limit for interest paid on home loan is Rs 2 lakhs,
irrespective of it being self-occupied or rented. However for rented homes any loss in excess of
Rs 2 lakhs can be carried forward for up to 7 years.

Budget 2016 had provided additional exemption up to Rs 50,000 for payment of home loan
interest for first time home buyers. To avail this benefit the value of home should not exceed Rs
50 lakhs and loan should not be more than Rs 35 lakhs.

Also Read: Should you Invest in Capital Gain Bonds to Save Taxes?

4. Payment of Interest on Education Loan (Section 80E)

The entire interest paid (without any upper limit) on education loan in a financial year is eligible
for deduction u/s 80E. However there is no deduction on principal paid for the Education Loan.

The loan should be for education of self, spouse or children only and should be taken for
pursuing full time courses only. The loan has to be taken necessarily from approved charitable
trust or a financial institution only.

The deduction is applicable for the year you start paying your interest and seven more years
immediately after the initial year. So in all you can claim education loan deduction for maximum
eight years.

More details @ Tax benefit on Education Loan

5. Medical insurance for Self and Parents (Section 80D)

Premium paid for Mediclaim/ Health Insurance for Self, Spouse, Children and Parents qualify
for deduction u/s 80D. You can claim maximum deduction of Rs 25,000 in case you are below
60 years of age and Rs 30,000 above 60 years of age.
An additional deduction of Rs 25,000 can be claimed for buying health insurance for your
parents (Rs 30,000 in case of either parents being senior citizens). This deduction can be claimed
irrespective of parents being dependent on you or not. However this benefit is not available for
buying health insurance for in-laws.

HUFs can also claim this deduction for premium paid for insuring the health of any member of
the HUF.

To avail deduction the premium should be paid in any mode other than cash. Budget 2013 had
introduced deduction of Rs 5,000 (with in the Rs 25,000/30,000 limit) is also allowed for
preventive health checkup for Self, Spouse, dependent Children and Parents. Its continued to this
year too.

More Details @ Tax Benefit on Health Insurance u/s 80D

6. Treatment of Serious disease (Section 80DDB)

Cost incurred for treatment of certain disease for self and dependents gets deduction for Income
tax. For very senior citizens (more than 80 years of age) the deduction amount is up to Rs
80,000; while for senior citizens (between 60 to 80 years of age) it Rs 60,000 and for all others
its Rs 40,000. Dependent can be parents, spouse, children or siblings. They should be wholly
dependent on you.

To claim the tax exemption you need a certificate from specialist from Government Hospital as
proof for the ailment and the treatment. In case the expenses have been reimbursed by the
insurance companies or your employer, this deduction cannot be claimed.In case of partial
reimbursement, the balance amount can be claimed as deduction

Diseases Covered:

1. Neurological Diseases
2. Parkinsons Disease
3. Malignant Cancers
4. AIDS
5. Chronic Renal failure
6. Hemophilia
7. Thalassaemia

Also Read: 3 Tax Payers who would Pay more Tax after Budget 2017

8. Physically Disabled Tax payer (Section 80U)

Tax Payer can claim deduction u/s 80U in case he suffers from certain disabilities or
diseases. The deduction is Rs 75,000 in case of normal disability (40% or more disability) and
Rs 1.25 Lakh for severe disability (80% or more disability)
A certificate from neurologist or Civil Surgeon or Chief Medical Officer of Government
Hospital would be required as proof for the ailment.

Disabilities Covered

1. Blindness and Vision problems

2. Leprosy-cured
3. Hearing impairment
4. Locomotor disability
5. Mental retardation or illness
6. Autism
7. Cerebral Palsy

Also Read: How to Calculate Income Tax? explained with example

9. Physically Disabled Dependent (Section 80DD)

In case you have dependent who is differently abled, you can claim deduction for expenses on
his maintenance and medical treatment up to Rs 75,000 or actual expenditure incurred,
whichever is lesser. The limit is Rs 1.25 Lakh for severe disability conditions i.e. 80% or more of
the disabilities. Dependent can be parents, spouse, children or siblings. Also the dependent
should not have claimed any deduction for self disability u/s 80DDB.

To claim the tax benefit you would need disability certificate issued by state or central
government medical board.

You can also claim tax exemption on premiums paid for life insurance policy (in tax payers
name) where the disabled person is the beneficiary. In case the disabled dependent expires before
the tax payer, the policy amount is returned back and treated as income for the year and is fully
taxable.

40% or more of following Disability is considered for purpose of tax exemption

1. Blindness and Vision problems

2. Leprosy-cured
3. Hearing impairment
4. Locomotor disability
5. Mental retardation or illness

Also Read: How to Pay 0 Income Tax on Rs 11 Lakh Salary?

10. Donations to Charitable Institutions

(Section 80G)
The government encourages us to donate to Charitable Organizations by providing tax deduction
for the same u/s 80G. Some donations are exempted for 100% of the amount donated while for
others its 50% of the donated amount. Also for most donations, the maximum exemption you can
claim is limited to 10% of your gross annual income. Please note that only donations made in
cash or cheque are eligible for deduction. Donations in kind like giving clothes, food, etc is not
covered for tax exemption.

How to Claim Sec 80G Deduction?

1. A signed & stamped receipt issued by the Charitable Institution for your donation is must
2. The receipt should have the registration number issued by Income Tax Dept printed on it
3. Your name on the receipt should match with that on PAN Number
4. Also the amount donated should be mentioned both in number and words

Also Read: 25 Tax Free Incomes & Investments in India

11. Donations for Scientific Research (Section

80GGA)
100% tax deduction is allowed for donation to the following for scientific research u/s 80GGC

1. To a scientific research association or University, college or other institution for

undertaking of scientific research
2. To a University, college or other institution to be used for research in social science or
statistical research
3. To an association or institution, undertaking of any programme of rural development
4. To a public sector company or a local authority or to an association or institution
approved by the National Committee, for carrying out any eligible project or scheme
5. To the National Urban Poverty Eradication Fund set up

Also Read: How you Loose Money in FD?

12. Donations to Political Parties (Section

80GGC)
100% tax deduction is allowed for donation to a political party registered under section 29A of
the Representation of the People Act, 1951 u/s 80GGC. The maximum exemption you can claim
is limited to 10% of your gross annual income

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13. House Rent in case HRA is not part of Salary (Section
80GG)
In case, you do not receive HRA (House Rent Allowance) as a salary component, you can still
claim house rent deduction u/s 80GG. Tax Payer may be either salaried/pensioner or self-
employed.

To avail this you need to satisfy the following conditions:

1. The rent paid should be more than10% of the income

2. No one in the family including spouse, minor children or self should own a house in the
city you are living. If you own a house in different city, you have to consider rental
income on the same

The House Rent deduction is lower of the 3 numbers:

1. Rs. 5,000 per month [changed from Rs 2,000 to Rs 5,000 in Budget 2016]
2. 25% of annual income
3. (Rent Paid 10% of Annual Income)

You need to fill form no 10BA along with the tax return form