Key Income Tax Deductions and Exemptions
Written in plain language to promote general understanding. This is educational information, not legal advice. Based on Indian central (Union) law — Constitution of India, central Acts of Parliament, and Supreme Court decisions.
Indian Central Law
What is this right?
Indian taxpayers can reduce their taxable income through a range of deductions and exemptions under the Income Tax Act. Most deductions are available only under the old tax regime.
- Section 80C (up to ₹1,50,000): Investments in EPF, PPF, ELSS, NSC, life insurance premiums, home loan principal repayment, tuition fees, 5-year bank FD, and Sukanya Samriddhi Yojana.
- Section 80CCD(1B): Additional ₹50,000 for contributions to the National Pension System (NPS) over and above 80C — combined ceiling is thus ₹2 lakh.
- Section 80D: Premium paid for health insurance — up to ₹25,000 for self/family; additional ₹25,000 (₹50,000 for senior citizens) for parents' health insurance.
- Section 24(b): Interest on home loan for a self-occupied property — deduction up to ₹2,00,000 per year.
- Standard deduction: ₹75,000 (from AY 2025-26, enhanced under the new regime too) for all salaried employees and pensioners.
- HRA (s. 10(13A)): Actual HRA received, subject to calculation (least of: actual HRA; 50%/40% of salary; rent paid minus 10% of salary) — only under old regime.
- New tax regime (s. 115BAC): Lower slab rates but most deductions (80C, 80D, HRA, LTA) are not available — evaluate which regime gives lower tax.
When does it apply?
- You are filing your income tax return and wish to maximise eligible deductions.
- You want to decide between the old and new tax regimes.
- Your employer has deducted excess TDS because you did not declare deductions in time.
What should you do?
- Submit a declaration of investments (Form 12BB) to your employer at the start of the financial year — this ensures TDS is deducted at the correct rate.
- Even if you miss the Form 12BB deadline, claim all eligible deductions in your ITR — any excess TDS will be refunded.
- Use the Income Tax Department's online tax calculator to compare old vs new regime taxes before the start of each financial year.
- Keep all investment proofs (premium receipts, EPF passbook, home loan statement) for at least 6 years — the department can call for verification up to 6 years after assessment.
What should you NOT do?
- Do not claim deductions for investments you have not actually made — fraudulent deduction claims attract penalties of 200% of the tax evaded under s. 270A.
- Do not switch tax regimes (old to new or vice versa) each year if you have business income — individuals with business income can switch only once from new to old regime.
- Do not miss the year-end investment deadline (31 March) — investments for 80C deductions must be made within the financial year they are claimed.
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