Income Tax Deduction & Exemptions in India: The Complete List

Understanding income tax exemptions and deductions can help taxpayers reduce their taxable income and manage their overall tax liability. While exemptions generally exclude certain types of income from taxation, deductions reduce taxable income by allowing eligible expenses or investments to be claimed under specified sections of the Income Tax Act. The availability of these benefits depends on factors such as the chosen tax regime, type of income, investments, and applicable conditions. Knowing the income tax deductions & exemptions available can help you plan your finances and file your income tax return correctly.

Income tax deductions and exemptions can affect how much of your income is subject to tax. An exemption generally means that eligible income or a specific allowance is excluded from taxable income, subject to applicable rules. A deduction, on the other hand, is usually claimed against eligible income to arrive at taxable income.

Understanding the difference is important because not every tax benefit is available under both tax regimes. For example, several deductions commonly used under the old tax regime have limited or no availability under the new tax regime. Therefore, taxpayers should assess their eligibility before making investments or claiming expenses for tax purposes.

An income tax exemption list can include benefits related to certain allowances, investments, insurance and specified income, depending on the applicable provisions. Similarly, an income tax deduction may be available for eligible investments, medical expenses, education loans, donations, and other permitted payments.

Knowing the applicable rules can also help taxpayers avoid incorrect claims. A benefit can be claimed only when the prescribed conditions are fulfilled and supporting documents are available.

The old and new tax regimes differ significantly in the way deductions and exemptions are treated. The new tax regime generally offers lower tax rates across its slabs but provides fewer deductions and exemptions. The old regime allows eligible taxpayers to claim several deductions and exemptions, subject to the relevant conditions.

The choice should therefore depend on your income structure, investments, eligible expenses, and the deductions you can actually claim. Taxpayers with substantial eligible deductions may find the old regime relevant, while those with fewer deductions may consider the new regime.

The tax regime should be selected after comparing the actual tax impact based on your circumstances.

There are different sections under the Income Tax Act, 1961 that provides tax deduction benefits based on the type of investment. Let us get into the complete list section wise. 

Section 80C

Section 80C is the most commonly used tax saving option for the majority of taxpayers. It allows individuals and HUFs to claim a deduction of up to ₹1,50,000 from the total gross income when investing in certain financial instruments. Here is a list of the most common options.

• Life insurance
• Public Provident Fund
• Employee Provident Fund
• Equity Linked Savings Scheme
• Tuition fees
• Home loan repayment(Principal amount)
• National Savings Certificate
• National Pension Schemes
• Sukanya Samriddhi Yojana
• Tax saving bank deposits and post office deposits
• Post Office Senior Citizens Savings Scheme

Let us consider an example.

Suppose an individual purchases good life insurance to secure his family in his absence. The premium amount paid and the payouts from the life insurance plan qualify for a tax deduction and exemption benefits under Section 80C of the Income Tax Act, 1961. Therefore, when the individual buys life insurance, he will ensure that his family benefits from the payout while saving on tax. And, our life insurance policy details such tax provisions for your advantage. Also, our customer service executive will help you with any queries in this regard at any time.

Subsections of Section 80C

• Section 80CCC - Tax deduction to investments made in annuity plans of life insurance companies.
• Section 80CCD - Tax deduction for investments made in government-based pension schemes such as the National Pension Scheme.
• Section 80CCF - Tax deduction for investments made in long-term government infrastructure bonds.
• Section 80CCG - Tax deduction for the investments made in equity savings schemes approved by the government.

Section 80CCD is further divided into Section 80CCD(1) and Section 80CCD(2).

Under Section 80CCD(1), the allowable tax deduction is 10% of an individual's salary or gross income and 20% of the total gross income for self-employed individuals. A new amendment is made to this Section introducing Section 80CCD(1B), allowing for a further deduction of up to ₹50,000. Therefore, the total deduction applicable under Section 80C, Section 80CCD(1) is ₹1,50,000 and an additional deduction of upto ₹50,000 under Section 80CCD(1B).

Under Section 80CCD(2), salaried individuals can additionally claim the amount contributed by the employer to the pension scheme or 10% of their salary. 

Section 80D

Section 80D provides a tax deduction for the amount paid as premiums for health insurance plans. It can be for the health insurance plans for self, spouse, children and dependent parents. The allowable tax deduction is

• ₹25,000 for self or family and ₹50,000 if you are a senior citizen
• ₹50,000 for senior citizen parents

An additional ₹5000 is available for medical checkups. And, the deduction of ₹50,000 is allowed only if the senior citizens are not covered in any other mediclaim policies.

Section 24

Interest on home loans up to ₹2 Lakh qualify for a tax deduction on self-occupied properties and the entire interest amount if the property is let out.

Section 80E

The interest paid towards education loans for higher studies will qualify for tax deduction under Section 80E. There is no upper limit for the deduction. However, the taxpayer can avail of the deduction benefit when the loan starts to get repaid and for the next seven years or before the repayment of the loan, whichever is earlier.

Section 80G

Section 80G of the Income Tax Act offers a tax deduction to the taxpayer for any donations made to charitable organisations. Based on the receiving organisation, the deduction can range between 50-100%.

Section 80TTA

Section 80TTA offers a deduction of up to ₹10,000 for the income earned from savings account interest.

Section 80EE

Section 80EE provides an additional tax deduction of ₹50,000 on interest paid for home loans. However, the loan should not exceed ₹35,00,000, and the property's value should not exceed ₹50,00,000. And, the individual should not have any other property in his name when the loan is accepted.

Standard Deduction

Apart from the deduction under different Sections, a standard deduction of ₹50,000 is applicable for salaried employees.

The Income Tax Act also allows for several tax exemptions for the benefit of the taxpayers. Here is a detail about the income tax exemption list.

House rent allowance

A salaried individual staying in a rented accomodation receiving HRA from the employer will qualify for tax exemption. It will be the least of the following:

• Total HRA received from the employer
• 50% of salary in metro cities and 40% of the salary for non-metros.
• Rent paid less than 10% of basic salary and DA.

Leave travel allowance

Salaried individuals can claim an exemption on the travel expenses incurred during their leave schedule. However, it is restricted to the travel made to domestic destinations through roadways, railways or airways.

Mobile reimbursement

The taxpayer can claim for tax-free reimbursement of mobile expenses incurred. It can equal the actual bill amount or the amount provided in the salary package, whichever is lower. Likewise, the expenses incurred towards books, newspapers, periodicals, etc., qualify for tax exemption. Again, it is the bill amount or the amount provided by the employer, whichever is lower.

Food coupons

Food coupons provided by your employer are tax-exempt to the extent of Rs. 50 per meal. And, two meals for every working day is applicable.

Relocation

Relocating to a different place for business reasons will incur huge expenses for an individual. However, if the employee incurs such expenses and the employer reimburses it back, it will qualify for tax exemption. Some of the common expenses are car transportation costs, car registration charges, air or train tickets, etc.,

Child education

Employers provide education allowance for the employee's children. For two children, such allowances up to ₹100 per month qualify for the exemption.

Non-Resident Indians (NRIs) may also be eligible for certain tax deductions and exemptions in India, depending on their residential status, income source and the applicable provisions of the Income Tax Act.

Life insurance premiums may qualify for a deduction under Section 123 of Income Tax Act, under the old tax regime, subject to prescribed conditions and limits. This can be relevant for NRIs who hold eligible life insurance policies and have taxable income in India.

Certain insurance policy proceeds may also qualify for tax exemption under Section 10(10D), provided the policy satisfies the applicable conditions. The tax treatment can depend on factors such as the policy issue date, premium amount and type of policy.

NRIs should also consider whether the income is taxable in India based on its source and the provisions of an applicable Double Taxation Avoidance Agreement (DTAA). Insurance-related tax benefits should therefore be evaluated alongside residential status and other applicable rules.

Taxpayers often make errors while using the income tax exemption list or claiming deductions. Some common mistakes include:

• Claiming an ineligible benefit: Do not claim a deduction or exemption unless you meet all prescribed conditions.
• Ignoring the tax regime: Check whether the deduction or exemption is available under the regime you have selected.
• Not keeping supporting documents: Preserve investment proofs, insurance premium receipts, rent receipts and other relevant records.
• Entering incorrect amounts: Ensure the amount claimed matches your actual eligible payment or investment.
• Claiming benefits twice: The same investment or expense should not be used to claim multiple benefits unless specifically permitted.
• Overlooking limits: Many deductions have prescribed monetary limits. Claiming amounts beyond the permitted limit can lead to an incorrect return.
• Assuming every allowance is tax exempt: Some allowances may be partly taxable or subject to specific conditions.

Keeping accurate records throughout the financial year can make the process of claiming tax benefits easier and reduce the possibility of errors during return filing.

Before filing your income tax return, identify the deductions and exemptions applicable to your income and tax regime. You should calculate the eligible amount based on the relevant provisions rather than simply using the total amount spent.

Keep the following documents ready where applicable:

• Investment proofs: Receipts or statements for eligible investments.
• Insurance documents: Premium receipts and policy details.
• Home loan documents: Interest certificates and loan statements.
• Medical expense records: Bills and supporting documents for eligible medical claims.
• Donation receipts: Valid receipts containing the required details of the recipient organisation.
• Rent-related documents: Rent receipts and other supporting evidence where applicable.
• Education loan documents: Interest certificates issued by the lender.
• Salary documents: Form 16 and salary statements to verify income and applicable exemptions.

While filing the return, enter the eligible deductions and exemptions under the appropriate sections. Review the figures against your supporting documents before submitting the return.

Taxpayers should also retain relevant records after filing because the documents may be required to support a claim during future verification. Since tax rules and limits can change, check the applicable provisions for the relevant assessment year before making a claim.

The Government of India provides tax deduction and exemption provisions to encourage individuals to invest in financial instruments. Therefore, it is important to understand these provisions and use them for maximum benefits. Individuals gain financial security and peace while saving on tax when choosing to invest long-term!