Income Tax Deductions Financial Year 2020-21

• Posted By Amritesh
• On July 17th, 2020
• Comments: 4 responses

The Income Tax implication remains unchanged under the old tax regime for the Financial Year 2020-2021. Tax Rebate up to Rs 12,500/- is retained U/S 87A for Individuals with taxable income up to Rs 5,00,000/- per annum. Thereby implying, Individuals with Income up to Rs 5 lacs will have zero tax liability for the Financial Year 2020-21 & Assessment Year 2021-2022. Standard Deduction of Rs 50,000/- is also available under the Old Tax regime. Income Tax Deductions Financial Year 2020-21 helps Salaried Individuals to reduce their tax liability under the Old Tax System.

Tax Slabs & Rate for Financial Year 2020-21

Income Tax Deductions Financial Year 2020-21 (Assessment Year 2021-22) available to the Assessee.

Income Tax Deductions Financial Year 2020-21 U/S 80C

Tax Deduction & Exemption up to Rs 1,50,000/- is available to Individuals U/S 80C. Section 80CCC & 80CCD (1) is clubbed under Section 80C with aggregate deduction ceiling of Rs 1,50,000/-. Investment qualifying for Income Tax Deduction and Exemption under Section 80C include investment in Public Provident Fund (PPF), National Savings Certificate (NSC), Equity Linked Savings Scheme (Mutual Funds), Life Insurance, etc.

Public Provident Fund: One of the most popular small savings scheme among Individuals. PPF offers guaranteed return along with tax benefits. The interest is declared on quarterly basis and interest is compounded annually. The investment comes with 15 year lock-in-period.

ELSS Funds: ELSS Mutual Funds comes with shortest lock-in period of 3 years. The investment is eligible of deduction under Section 80C. The investment in Mutual Funds allows investors to earn higher returns on investment. However, the investment in capital market is subject to volatility. Therefore, Investors need to take an informed decision.

National Savings Certificate (NSC): NSC comes with 5 year lock-in period. The investment is eligible for Tax Deductions. However, the interest earned is liable to Tax. The interest on investment is declared on Quarterly basis.

Life Insurance Plans : Premiums paid towards life insurance policies is also eligible for deduction under section 80C. Premium paid for Self, Spouse, Dependent Children and any member of Hindu Undivided Family is eligible for deduction.

Income Tax Comparison: Old vs New Tax Regime

Senior Citizens Savings Scheme (SCSS): The scheme is specially for Senior Citizens and offers highest return among Small Savings Schemes. The tenure of the scheme is 5 years. Individuals above the age of 60 year is eligible to participate in the scheme.

Sukanya Samriddhi Yojana (SSY): The scheme is aimed at the welfare of a girl child. Parent or Guardian of a girl child below the age of 10 years is eligible to join the scheme. The scheme is extended to maximum of 2 girl child (3 in case of twins). The maximum deduction available is Rs 1,50,000/- under the scheme.

Repayment of Principal on House Loan taken is also eligible for Deduction along with Registration Fee and Stamp Duty paid towards the same. However, the benefit is restricted to the maximum deduction limit of Rs 1,50,000/-. Provided the Individual does not transfer the property before expiry 5 years from the Financial Year in which it was acquired. The deduction on Registration Fee and Stamp Duty is also available to Individuals who have not availed Home Loan.

Income Tax Deductions U/S 80 CCD (1b) 

Contribution up to Rs 50,000/- is eligible for deduction up and over the deduction available U/S Section 80C on deposits made to National Pension Scheme (NPS) and Atal Pension Yojana (APY).

Individuals may invest in these retirement schemes to avail tax deduction up to maximum of Rs 50,000/-.

Income Tax Deductions U/S 80D

Additional deductions up and above the Deductions availed U/S 80C & 80CCD (1b) is available U/S 80D on payment made towards Health Insurance Premium. It covers the premium paid on the Health Insurance cover for self and family. Deduction of Rs 25,000/- can be availed for the premium paid for Self, Spouse and dependent children below 60 years of age. The deduction goes up to Rs 50,000/- in case the age of the family member is above 60 years. Additional deduction of Rs 50,000/- is available on premium paid towards the Health Insurance for parents above the age of 60 years.

Income Tax Deductions U/S 80DDB

Tax Deduction up to the extent of Rs 40,000/- is allowed on expenses incurred in treatment for specified medical disease for Self or dependent family members. In case of Senior Citizens (above 60 years) the limit goes up to Rs 1,00,000/- (Rs 1 lac).

This deduction is available only in cases of specified diseases such as Cancer, Kidney Failure, AIDS, Haemophilia, Dementia, Neurological Disorder, etc.

Income Tax Deductions U/S 80E

Deduction is also available on the education loan for higher studies (Graduation or Post Graduation) in the fields of Medicine, Engineering, Management, or Science. The deduction is available from the 1^st year and subsequently for next 7 years. Deduction is available on the EMI paid as interest on the loan.

Income Tax Deductions U/S 24 

Deductions up to Rs 2,00,000/- is available on the interest paid on the Loan availed for purchase/construction of self occupied House Property. However the acquisition and construction of such house property should be completed within 5 years from the end of Financial year in which Home Loan was taken. The sum should be borrowed on or after 01/04/1999 to be eligible for deduction.

Income Tax Deductions U/S 80EEA

As announced in the Budget, Additional Deduction of Rs 1,50,000/- on interest paid towards  home loan is also admissible. This is applicable for affordable housings up to the value of Rs 45 lakhs. The deduction is applicable on loans taken between 1^st April, 2020 and 31^st March 2021. The deduction is subject to fulfillment of the criteria laid down.

Furthermore, the Individual should not be entitled for deduction U/S 80EE, in order to claim deduction U/S 80EEA.

Thus maximum deduction available on Home Loan interest payment is Rs 3,50,000 (3.5 lacs). 

Tax Deductions U/S 80EE

Additional Deduction of Rs 50,000/- on interest paid on home loan is available for 1^st time home buyers on loans up to 35 lacs, provided the value of property does not exceed 50 lacs. This deduction is up and above the Rs 2,00,000/- available on account of interest paid on loan. Deduction is available per Financial Year till the period the loan has been fully repaid.

Loan should be sanctioned by a Financial Institution or Housing Finance Company, provided Loan must be sanctioned between 01/04/2016 to 31/03/2017.

Income Tax Deductions U/S 80G

Deductions is also applicable for the donations made to notified NGO’s, Charitable Institutions are eligible for 50% or 100% deduction as provided under the act. However, on institution wherein “the upper limit” clause is applicable, the maximum deduction allowed is either 50% or 100% (as applicable) of 10% of the Adjusted Gross Total Income after claiming other deductions. Contribution has to be made via digital platform or cheque to claim the deduction.

Some of the scheduled Funds wherein 100% Deduction is available without qualifying limit;

#National Defense Fund

#PM Cares Fund

#Prime Minister Relief Fund

#Swacch Bharat Kosh

#National Illness Assistance Fund

#National Children’s Fund

#Clean Ganga Fund  (List not exhaustive)

Income Tax Deductions U/S 80GG

Deduction available in respect of House Rent Paid, the least of the following:

• Rent paid less 10% of the total income.
• 5000/- per month. (Maximum Deduction available is 60,000/-)
• 25% of total income, provided that;

Assessee or the spouse or minor child should not own residential accommodation at the place of employment, or anywhere else in occupation of the Assessee and is not receipt of House Rent Allowance.

Furthermore, the deduction is available provided the Individual, does not receive any benefit of deduction U/S 10 (13A) for House Rent Allowance.

Tax Deductions U/S 80TTA/B 

Deduction from Gross Total Income up to a maximum of Rs. 10,000/- is allowed, in respect of interest on deposits in savings account (not time deposits) with a bank, co-operative society or post office.

Interest earned on Savings & Time Deposits is eligible for deduction in respect of Senior Citizens. The deduction limit is enhanced to Rs 50,000/- under Section 80TTB.

Tax Deductions U/S 80DD & U

Deduction of Rs 75,000 U/S 80DD is allowed to meet the expenses and medical treatment of disabled dependent person. In case of severe disability (more than 80%) the Deduction limit is raised to Rs 1,25,000/-.

Deduction of Rs 75,000 U/S 80U is allowed to meet the expenses and medical treatment of any disability suffered by Resident Individual (Self). In case of severe disability (more than 80%) the Deduction limit is Rs 1,25,000/-.

Income Tax Deductions Financial Year 2020-21 under Section 80C to 80U applicable under the Old Tax Regime has been discussed. These tax deductions are provided to encourage Individuals plan their finances in order to reduce their tax liability.

Wealthtech Speaks or any of its authors are not responsible for any errors or omissions, accuracy, completeness, timeliness or for the results obtained from the use of this information. This article is for informational purpose only. It is very important to do your own analysis and consult your Financial Advisor before arriving at any conclusion.