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Crash Course on Tax Terminologies in India

It is that time of the year when along with your HR / Finance department, you try to build a shield against danger lurking around the corner. A Monster which eats away a big chunk of your hard earned money – the Tax Monster is here and trailing him are complex terminologies which were not created to make life, any easier for the common man.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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If you still haven’t figured out where and how to invest your hard earned money to by purchasing tax saving investments, then this crash course on Tax Terminologies in India by Bajaj Allianz Life Insurance Co. ltd. will definitely help you. Read on to know your 80C’s from your 80E’s & JIYO BEFIKAR!!

Permissible Deductions for Gross Income (What do those sections mean?):

Section 80C deductions

Deduction under this section is available only to an individual or an HUF (Hindu Undivided Family). It allows certain investments and expenditure to be deducted from total income up to the maximum of ₹150,000 from the Financial Year 2014-15.

Section 80CCC(Pension Funds)

Payments made to any approved insurer under an approved pension plan is admissible for deduction under this section. Then pension plan policy should be for an individual himself out of his taxable income. The deduction is least of the amount paid or ₹1,50,000

Section 80CCD (Employer Pension Scheme)

Contribution made by the assessee and by the employer to New Pension Scheme is admissible for deduction under this section. The deduction shall be equal to the amount contributed by the assessee and/or by the employer, not exceeding 10% of his salary (basic+dearness allowance).

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The total deduction available to an assesse under sections 80C, 80CCC & 80CCD is restricted to 150,000 per annum. However, employer’s contribution to Notified Pension Scheme under section 80CCD is not a part of the limit of 150,000.

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Sec 80D:Medical insurance premiums

Provides tax deduction from total taxable income for medical insurance premium paid by an individual or a HUF

Section 80DDB: Deduction in respect of medical treatment

Deduction is allowed to resident individual or HUF (Hindu Undivided Family) in respect of expenditure incurred for the medical treatment of specific disease or ailment for himself or for a dependent relative or a member of a HUF

Section 80E: Education loan interest

Interest payment on education loan for education in India or abroad gets deduction under this section. Education loan should be for self, spouse, child.

Section 80TTA: Interest on Savings Account

Up to ₹10,000 earned as interest from savings account in bank, post office or a co-operative society can be claimed for deduction under this section. This rebate is applicable for individuals and HUFs.

Section 80U: Disability

Disabled persons can get a flat deduction on Income Tax on producing their disability certificate. If disability is severe ₹1 lakh can be claimed else ₹50,000

Section 24: Interest on Housing Loans

For self-occupied properties, interest paid on a housing loan up to ₹200,000 per year is exempt from tax. This deduction is in addition to the deductions under sections 80C, 80CCF and 80D. However, this is only applicable for a residence constructed within three financial years after the loan is taken.

For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. However, the rent is to be shown as income from such properties. 30% of rent received and municipal taxes paid are available for deduction of tax.

Investments eligible under Section 80C/80CCC/80CCD

Life insurance premiums 80C: Deduction is available under Section 80C with respect to premium paid towards life insurance policy for self, spouse and any child. The amount received on maturity of the policy is exempt from tax, subject to the policy terms.

Public Provident Fund (PPF) 80C: Contribution to a PPF account in the name of self, spouse and child is eligible for deduction under Section 80C. The interestaccrued on the account is not taxable.

National Saving Certificate (NSC) 80C: The amount invested in NSC is eligible for deduction under Section 80C. Further, the interest accrued annually on NSC, though taxable, is deemed to be re-invested and qualifies for deduction (except in the year of maturity).

Five-year bank fixed deposits (FDs): Any FDs with a nationalized or private bank or under a notified scheme, with tenure of five years is eligible for deduction under the above section.

However, the interest accrued on the FDs is subject to tax laws.

Post office five-year time deposit (POTD) scheme 80C:Similar to bank FDs, a five-year POTD qualifies for deduction under Section 80C.

However, interest accrued on the same is entirely taxable.

Senior citizen savings scheme (SCSS) 80C: These are intended only for senior citizens only and available at post offices and several select banks.

The interest accrued on the same is entirely taxable.

Unit-linked insurance plans (ULIP) 80C:ULIPs cover life insurance with benefits of equity linked investments. Minimum tenure of the policy to claim tax benefit is 5 years. The returns on ULIPs are also exempted from tax, subject to policy terms.

Mutual fund (MF) and equity-linked savings scheme (ELSS) 80C:Similar to ULIPs but without life cover. They also have a 5 year lock-in period.

Home loan principal repayment 80C:Your home loan EMI has two components – principal & interest. Only the principal component qualifies for deduction under Section 80C, provided the loan is taken from a prescribed lender (banks, PSU, etc.).

Stamp duty and registration charges for a home 80C: Stamp duty and registration charges paid for transfer of property qualify for deduction under Section 80C.

Tuition fees 80C:Tuition fees paid for full-time education in a recognised Indian university, college, school, educational institution, for any two children are eligible for deduction under Section 80C. Please note, tuition fees do not include payment towards any development fees or donation or payment of similar nature.

NABARD Rural Bonds 80C:Investment in rural bonds issued by NABARD qualifies for deduction under section 80C.

Other Investment Tools Eligible for Tax Deductions

Infrastructure bonds 80CCF: The amount invested in these qualify for additional deduction up to ₹20,000 per annum (pa) under Section 80CCF.

Medical insurance premium 80D: Premium paid for self, spouse and dependent children can be deducted up to ₹15,000 per annum (pa) and an additional ₹5,000 can be discounted if they are senior citizens.

Maintenance, including treatment, of disabled dependent 80DD: Deduction of₹50,000 pa is available for expenditure incurred for treatment of a disabled dependent (Section 80DD).

Medical treatment 80DDB: Similar to 80DD, expenses incurred on a specific set of diseases on self or dependents can be claimed under 80 DDB, up to ₹40,000 (Rupees. 60,000 for senior citizens)

Donations 80G: An amount donated to a recognised charitable institution qualifies for deduction under Section 80G.

Rent 80G: Applicable for salaried individuals who do not have a HRA component in their salary. The deductible amount is the rent paid in excess of 10% of total income-subject to a maximum of ₹2,000 per month or 25% of total income, whichever is less.

Interest on education loan 80E: Interest paid on an education loan qualifies for deduction under Section 80E. It is available for eight years starting from the financial year in which the individual starts paying interest.

We hope you now understand the different types of investments that avail a tax deduction. The following are some key terms that come up when you are evaluating investment options especially different types of Life insurance policies, ULIPs, Mutual Funds, etc.

Source: Wikipedia

Disclaimers:
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#Survey conducted by brand equity – Nielsen in March 2020

~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

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