Tax Savings & Deductions under Chapter VI A

Individuals and HUFs (Hindu Undivided Family) can claim income tax deductions on certain investments and expenses undertaken during the financial year.

Section 80C: Income Tax Saving Investments & Payments

Section 80C allows deduction on certain investments and expenses mentioned under the Income Tax Act. The maximum limit for this deduction is INR. 1,50,000.

Investments Eligible for Tax Deductions u/s 80C

  • ELSS – Equity Linked Saving Scheme: It is an equity-based tax saving mutual funds. Investments made up to INR 1,50,000 under ELSS qualify for tax benefits. It has a lock-in period of 3 years.
  • PPF – Public Provident Fund: PPF is a government-backed provident fund with a fixed interest rate of approximately 8% p.a. You can invest a minimum of INR. 500 and maximum INR. 1,50,000 in a financial year. The PPF deposit, interest, and withdrawal amount are exempt from tax. The maturity period for a PPF is 15 years.
  • EPF – Employee Provident Fund: is a savings scheme for employees.  Each month a portion of their salary is deducted towards EPF. This fund is made available to the employee when they retire or change jobs. Employee’s contributions to EPF was tax deductible u/s 80C. However, as per the recent announcement in Budget 2021,  Interest earned on annual PF contribution exceeding 2.5 lacs from April 2021 will now be taxable. While the employer’s contribution is completely tax-free Any withdrawal after the specified period (5 years) is exempt from income tax.
  • NSC – National Savings Certificate: is a small savings scheme offered by the Indian Post office earning an interest rate of 8.0% p.a.
  • Tax Savings Fixed Deposits: also known as term deposits are offered by different banks and financial institutions for tax saving investment u/s 80C.
  • Sukankya Samriddhi Savings Scheme: is aimed at the betterment of girl children in India. The deposits earn an interest of 8.6% p.a. with a maturity period of 21 years.
  • ULIP i.e. Unit Linked Insurance Plan: any amount invested by an individual in a pension fund set up by a mutual fund or UTI is allowed as a deduction u/s 80C up to INR. 1,50,000
  • SCSS i.e. Senior Citizen Savings Scheme: is open to any person above the age of 60 years, or 55 years who have opted for retirement. Savings under the SCSS scheme will earn interest at 8.6% p.a with a lock-in period of 5 years.
  • Pension Fund by UTI: investment amount up to INR 1,50,000 by an individual in a pension fund set up by a mutual fund or UTI is eligible for exemption

Payments eligible for Income Tax Deductions u/s 80C

  • Life Insurance Premium: amount paid as a life insurance premium for self, spouse or children is eligible for deduction. However, the amount paid should be less than 10% of the sum assured.
  • Home Loan Repayment: includes repayment of principal amount towards a home loan taken for construction or purchase of residential house property. The
    stamp duty expenses, registration expenses and transfer expenses paid are also eligible for deduction.
  • Children Tuition Fees: Tuition fees paid for a full-time course to any school, college, university or educational institute in India. The deduction is available for up to two children.

Section 80CCD – Tax Deductions for Contribution to Pension Fund

Any individual who contributes towards the National Pension Scheme (NPS) can claim deduction under this section. There are 3 different parts of the section 80CCD, that allows the deduction subject to different for a different condition.

Tax Benefits of NPS (National Pension Scheme)
Section Component Deduction
80CCD(1) Employees Contribution to Pension Fund INR 1,50,000
80CCD(2) Employers Contribution to Pension Fund

10% of Basic Salary 

80CCD(1b) Voluntary Contribution to NPS INR 50,000

Both Section 80C and 80CCD are covered under section 80CCE. The total deduction amount eligible for deduction u/s 80CCE is INR 1,50,000 in a financial year.

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Section 80D – Tax Deductions for Medical Insurance Premium

Section 80D of the income tax allows individuals and HUFs (Hindu Undivided Family) to claim a deduction for the amount paid towards medical expenditure. The medical expenditure includes:

  • Medical insurance premium
  • Medical expenditure
  • Preventive health checkup

An individual taxpayer can claim the deduction for medical expenses paid for the following:

  • Self
  • Spouse
  • Children
  • Parents

In the case of Hindu Undivided Family (HUF), a deduction is allowed for medical insurance premium paid for a member of HUF.

Section 80DD – Tax Deductions for Differently Abled Dependant

A resident Individual/ HUF can claim a deduction for any expenses incurred on the treatment of dependent family member.
The list of diseases covered u/s 80DD is:

  • Autism
  • Cerebral palsy
  • Blindness
  • Low vision
  • Leprosy cured
  • Hearing impairment
  • Locomotor disability
  • Mental retardation
  • Mental illness

The deduction limit u/s 80DD is:

Category Deduction Amount
Disabled Person (40% or more of the disability) INR 75,000
Severely Disabled Person (80% or more of the disability) INR 1,25,000

Section 80DDB – Tax Deductions for Treatment of Specified Diseases

Section 80DDB is for expenses incurred on the treatment of specified diseases. The list of diseases covered u/s 80DDB are:

  • Neurological Diseases with a disability of at least 40%
  • Malignant cancer
  • AIDS
  • Chronic Kidney failure
  • Haemophilia
  • Thalassemia

The deduction limit u/s 80DDB is:

Age Deduction Amount
Individual or a member of HUF, aged below 60 INR 40,000
Individual or a member of HUF, aged 60 years or above INR 1,00,000

Section 80U – Tax Deductions for Individuals with Disability

Deduction u/s 80U can only be claimed by Resident individuals with a disability. HUF cannot claim tax deduction u/s 80U if any of its members are suffering from a disability. An individual suffering from any of the following disabilities is eligible to claim deduction u/s 80U:

  • Autism,
  • Cerebral palsy,
  • Blindness,
  • Low vision,
  • Leprosy cured,
  • Hearing impairment,
  • Locomotor disability,
  • Mental retardation,
  • Mental illness.

The tax deduction limit u/s 80U is

Category  Deduction Amount
Disabled Person (40% or more of the disability) INR 75,000
Severely Disabled Person (80% or more of the disability) INR 1,25,000

 

Section 80E – Tax Deductions for Interest on Education Loan

Section 80E allows a deduction for interest paid on repayment of education loan taken for higher education. The deduction u/s 80E is not available for principal repayment of the education loan.
There is no monetary limit u/s 80E. An individual can claim the total interest amount paid as a deduction. However, a deduction is available only for 8 consecutive years.

Only individuals are eligible to claim deduction u/s 80E if they fulfil the following conditions:

  • The loan must be taken from the financial or charitable institution.
  • The loan repayment must be done by the taxpayer
  • The purpose of the loan taken should be to pursuing higher education for self or for a relative. Relative includes spouse, children, and student for whom an individual is a legal guardian.

Section 80EE – Tax Deductions for First Time Home Buyer

Sections 80EE allows individuals to claim the deduction for interest paid on the home loan taken for the first residential house. The eligible deduction amount for AY 2019-20 (FY 2018-19) is INR 50,000.
This limit of Rs. 50,000 is over and above the deduction of Rs. 2,00,000 allowed for home loan interest u/s 24.

To claim income tax deductions u/s 80EE following conditions must be fulfilled:

  • An individual is a first time home buyer.
  • Value of residential house should not exceed Rs. 50,00,000.
  • A loan has to be sanctioned between 1st April 2016 to 31st March 2017.
  • A loan must be sanctioned by Financial institutions or Housing Finance Company.
  • Sanctioned loan amount should not exceed Rs. 35,00,000.
  • A taxpayer should not own any other residential house on the date of a sanction of a loan.

Section 80G – Donation to Charitable Organisations

Section 80G allows Individuals, HUFs, and businesses to claim income tax deductions for donations made to certain relief funds and charitable institutions. However, only donations made to funds prescribed by the government of India qualify as a deduction.

The qualifying limit eligible for deduction differ based on the charitable organization. Types of income tax deductions on donations u/s 80G are:

  • 100% Income Tax Deduction without any qualifying limit
  • 50% Income Tax Deduction without any qualifying limit
  • 100% Income Tax Deduction subject to 10% of adjusted gross total income
  • 50% Income Tax Deduction subject to 10% of adjusted gross total income
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Section 80GG – Rent paid

Section 80GG allows a tax deduction for rent paid for furnished or unfurnished accommodation. The deduction is allowed to taxpayers who do not receive any HRA from their employer.

Following conditions must be fulfilled to claim deduction u/s 80GG for Rent paid

  • Only an individual can claim deduction u/s 80GG. The individual can be either salaried or self-employed.
  • In the case of a salaried person, they should not be receiving House Rent Allowance from an employer.
  • For claiming a deduction, Form-10BA needs to be submitted with the Income Tax Department.
  • Assessee or spouse or minor child or HUF of which they are a member should not own be owning any residential accommodation at the place where he/she is residing/performing office duties under-employment/carrying business or profession
  • The assessee should not own a house property at any place, for which income is calculated as income from self-occupied house property.

The eligible deduction limit u/s 80GG is lower of the following amounts:

  • Total rent paid less 10% of total income
  • 25% of the annual salary
  • INR 5000 per month i.e INR 60,000 annually

Section 80TTA – Savings Interest

Section 80TTA of the Income Tax Act allows a deduction on savings account interest. Individuals (other than senior citizens) and HUFs can claim a deduction up to INR 10,000 for a financial year. The bank account statements are required to calculate and claim deduction u/s 80TTA.

Following interests are eligible for deduction u/s 80TTA:

  • Interest earned from Saving Account with Bank,
  • Any interest earned from Saving Account with Co-operative Society,
  • Interest earned from Saving Account with Post Office.

Section 80TTB – Interest Deduction on deposits for Senior Citizens

Section 80TTB under the Income Tax Act which allows resident senior citizens to claim a deduction on interest income up to INR 50,000 for a financial year. This section is applicable from FY 2018-19 (AY 2019-20) onwards.

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Following interests are eligible for income tax deductions u/s 80TTB:

  • Interest earned on Bank Deposits i.e, saving account interest, fixed deposits, recurring deposits.
  • Any interest earned on deposits with Co-operative Society engaged in banking.
  • Interest earned from Post Office Deposits i.e, Saving Account Interest, NSC, Senior Citizens Savings Scheme Accounts, Time Deposits, 5-year recurring deposits, and monthly income schemes.

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FAQs

Can I save more than INR 1.5 Lakh in Taxes?

Yes, apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE. You can save upwards of INR 2,00,000 in taxes.

Can I claim Chapter VIA deductions under the New Tax Regime?

With the majority of income tax deductions slashed in the New Tax Regime, some Deductions are still claimable.
– Rebate u/s 87A
– Standard Deduction on Rent Received
– Agricultural Income
– Life Insurance Income to Beneficiary
– Retrenchment Compensation
– Voluntary Retirement Scheme
– Leave Entrenchment on Retirement

What is the Section 80CCD(2) of Income Tax?

Section 80CCD(2) allows employees to claim up to 10% of basic plus DA for Tax Deductions. This contribution is considered an additional deduction as its not part of Rs 1.5 lakh allowed under Section 80C.

Section 80TTA: Deduction for Interest Earned on Savings Account

What is Deduction under section 80TTA?

Every quarter bank credits interest to your savings account. This savings interest is considered as your taxable income under the head “Income From Other Source.” Section 80TTA of the Income Tax Act was introduced in order to allow a deduction of up to INR 10,000 on such interest.

Deduction under section 80EEA is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime
Tip
Deduction under section 80EEA is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime

Who can Claim Savings Interest Deduction Under Section 80TTA?

80TTA deduction was introduced to encourage taxpayers to generate more savings. It is available to individuals and HUFs other than senior citizens. Section 80TTB is applicable in the case of a senior citizen.

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What is the Deduction Limit Under Section 80TTA?

The maximum deduction allowed under section 80TTA of Income Tax Act is INR 10,000 for FY 2018-19 (AY 2019-20). If interest income from all the saving accounts is less then INR 10,000 then the entire amount is deductible. If total interest from saving accounts exceeds INR 10,000 then the maximum of INR 10,000 will be deductible and the remaining amount will be taxable.

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Which Interests are Eligible for Deduction Under Section 80TTA?

Following interests are eligible for a savings interest deduction under this section:

  • Interest earned from Saving Account with Bank,
  • Any interest earned from Saving Account with Co-operative Society,
  • Interest earned from Saving Account with Post Office.

Following interests are not eligible for deduction under this section:

  • Interest earned from fixed deposits,
  • Any interest earned from recurring deposits,
  • Interest earned from any other time deposits.

How to Claim Savings Interest Deduction Under Section 80TTA?

You can claim a deduction by filing your ITR. First, you need to add total saving interest as income under the head “Income From Other Source”, and then enter the same amount as a deduction under Chapter VI-A.

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How is the Deduction Calculated Under Section 80TTA?

In-order to understand the calculations better, let us take an example;

Ms Desai is a resident individual. And has earned the following income during the FY 2019-20:

  • Interest earned from Union Bank Savings Account: INR 16,000
  • Interest earned from Post Office FD: INR 24,000
  • Interest earned on Debentures: INR 3,500

Ms Desai will be able to claim deduction under section 80TTA only on the interest earned from Union Bank Savings Account and the eligible deduction that is available u/s 80TTA that she can claim is INR 10,000.

Comparison between Section 80TTB and 80TTA

Parameters Section 80TTB Section 80TTA
Eligibility Only senior citizens Individuals and HUFs can also claim deductions
Exemption Limit Maximum INR 50,000 a year Maximum INR 10,000 a year
Specified Income Deduction on interest from all kind of deposits Deduction on interest from the savings account only
Applicability for NRI’s NRI’s are not eligible to claim deductions under 80TTB NRI and NRO’s who have a savings account can claim deduction u/s 80TTA

ITR Form Applicable for Section 80TTA

The taxpayer can claim deductions under this section while filing ITR if all the above-mentioned conditions are full-filled. Individuals/HUFs can claim 80TTA in any of the ITR forms, i.e, ITR 1ITR 2ITR 3, and ITR 4 depending upon their income sources. The due date for filing ITR is 31st July of the next FY if the tax audit is not applicable.

Supporting Documents

In the case of Section 80TTA, along with the common documents such as Form 16, you only need to show present your bank statements showing your transactions of savings account for calculating the interest earned and the deductions.

FAQs

Is TDS applicable on saving bank account interest?

No. TDS is not applicable on saving bank account interest. However, if it is NRO account then TDS is applicable.

Can an NRI claim a deduction u/s 80TTA?

Yes, an NRI can claim a deduction on saving bank account interest under section 80TTA.

What documents are required to claim deduction u/s 80TTA?

The bank account statement is required to calculate and claim deduction under section 80TTA.

For how many bank accounts can I claim a deduction u/s 80TTA?

There is no limit on the number of accounts or the interest that is earned via these accounts. One has to note that the maximum deduction that is available u/s 80TTA is INR 10,000 irrespective of the number of accounts.

Can a senior citizen claim deduction u/s 80TTA?

No, a senior citizen can claim deduction under section 80TTB and not section 80TTA

Is the deduction that is available under section 80TTA over and above the deduction available under section 80C?

Yes, the deduction of INR 10,000 under section 80TTA is available over and above the deduction of INR 1,50,000 availabe under section 80C.

Hindu Undivided Family (HUF) and its tax benefits

Hindu Undivided Family, commonly known as HUF is a separate entity from its members for the purpose of Income Tax assessment. It is incorporated for its tax benefits, generally.

The term is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. So basically a Hindu Undivided Family is not created by any Act but by status.

Who can form HUF?

A HUF cannot be formed by an individual or a coparcener (a person who acquires a right in the ancestral property by birth and who has a right to demand partition in the HUF property).

A married male can form a HUF. Members of the family including the Father, his wife, children, their wives and their children will be the members of this Hindu Undivided Family. Now, if a father of two daughters passes away, HUF can be carried forward by the daughters (The elder daughter will be Karta).

The Karta: The eldest male person of this Hindu Undivided Family is called Karta and he usually handles the affairs. He has to apply for a separate PAN as a Karta. With the consent of the other members of HUF, a junior male member can also be the Karta of family.

The Members: People other than Karta are the members of the HUF. The wife, the sons and unmarried daughters can be called as Members of a HUF. Even a father and his unmarried daughter can form a HUF. As mentioned in the beginning, HUF is a separate entity from its members. So the income which is brought to the common pool of it by its members or the income which is generated from the assets in the common pool will also be taxed separately as HUF income and shall not be taxed as members’ income.

Difference between a Member and a Coparcener:

A coparcener and a member of a HUF are two different entities. A coparcener has the right to demand partition in the HUF property. So, in case of a partition, a coparcener would receive his/her share while a member would be entitled to receive maintenance from the HUF. The family property managed by Karta is considered the joint property for all the coparceners until they ask for a division.

Tax applicable on HUF income

Once the separate PAN has been obtained, the Hindu Undivided Family will be required to file Income Tax return every year, just like every other individual. Tax will be applied to HUF income at the slab rate which is applicable to individuals. HUF will also enjoy the basic exemption limit of Rs. 2,50,000 which is available to individuals.

Now, if a Hindu Undivided Family contributes funds to a partnership firm, the profits and interest received from it are considered as income of a HUF, because the investment was done by HUF as a whole, and not just by Karta. However, if the Karta is also paid salary from the same firm for his contributions, such income would be considered his individual income.

The tax benefits of HUF can effectively be utilised for tax planning. To understand it simply, if a member is having income which is taxed at the highest slab rate (30 %) if that income is brought to the common pool of HUF it may be taxed at the lower slab rate and at the same time HUF will also enjoy some of the deductions under chapter VIA thus reducing the tax burden on the individual member.

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Tax Deductions available to HUF

As discussed earlier, HUF is a separate legal entity and it also enjoys the basic exemption limit of Rs. 2,50,000 and deductions that are available to an individual. Here are some of section 80 deduction which is available to HUF:

 

Section Deduction for Allowable if
80C Life Insurance Premium Paid for the Policy of any of the members of HUF
Payment under a contract for a deferred annuity Paid for the Policy of any of the members of HUF
Public Provident Fund (PPF) Any contribution made towards PPF account of a member of HUF
Unit Linked Insurance Plan of UTI & LIC Mutual Fund The contribution made in the name of any of the members of HUF
Tuition fees Paid for children of any of the members of HUF
Certain payments for purchase/ construction of residential House Property, Repayment of Housing Loan Paid for the House Property purchased or constructed by HUF and the expenses are wholly and exclusively for the purchase of the property
Subscription to Equity Linked Saving Scheme Paid for the scheme which is either in the name of the HUF or any of the members of the HUF
Term deposit for a fixed period of not less than 5 years, with a scheduled bank or with Post Office Paid for the deposit in the name of HUF or any of its members
80D Health Insurance Premium / preventive health check-up Paid for any of the members of the HUF
80DD Expenditure on medical treatment of a person with a disability Paid for any of the members (with a disability) of the HUF
80DDB Expenses paid for medical treatment of specified diseases and ailments Paid for the treatment of any of the members of the HUF who are completely dependent on the family
80TTA Interest on deposits in Savings Bank Account The interest is earned on the Savings Bank Account in the name of HUF

If HUF is carrying any business, then the expenses in relation to the business can also be claimed while calculating the tax on HUF income. If the Karta and members of HUF are working for the HUF business, than any salary or remuneration paid to them can be claimed as an expense from the HUF business income.

Tax Planning with HUF

You would have understood by now that apart from its members, HUF also enjoys the basic exemption limit of Rs. 2,50,000 as well as the deductions as mentioned above. This can be utilised to the advantage of the members. Let’s take a look at a situation for better understanding.

Dhruv and Khushboo are married and have a son named Tanay. Khushboo earns a Salary of Rs. 10 Lakh per year. Dhruv earns Rs. 18 Lakh from his business and also has an ancestral property from which he earns rental income of Rs. 5 Lakh. So at present, their Tax Liability is as follows:

Particulars Dhruv Khushboo
Salary Income / Business Income 18,00,000 10,00,000
Rental Income from ancestral property 5,00,000
Total deductions under section 80 1,50,000 1,50,000
Total Taxable Income 21,50,000 8,50,000
Tax Liability as per Slab Rate 4,84,100 97,850
Combined Tax Liability 5,81,950

Now, if they form an HUF, they can

  • Divert Rental Income from ancestral property to HUF.
  • Register a business in the name of HUF and also divert a portion of Dhruv’s business income to HUF (say Rs. 6,00,000).
  • Make investments and payments from HUF to claim a deduction. For example, life insurance premium paid by HUF for the life of Dhruv, Khushboo, and Tanay will be allowed a deduction from HUF income.
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So now the Tax Liability will be as follows:

Particulars Dhruv Khushboo HUF
Salary Income / Business Income 12,00,000 10,00,000 6,00,000
Rental Income from ancestral property 5,00,000
Total deductions under Section 80 1,50,000 1,50,000 1,50,000
Salary Income / Business Income 12,00,000 10,00,000 6,00,000
Total Taxable Income 10,50,000 8,50,000 9,50,000
Tax Liability as per Slab Rate 1,44,200 97,850 1,18,450
Combined Tax Liability 3,60,500

In conclusion, they were able to save Rs. 2,21,450 (5,81,950 – 3,60,500) by forming a HUF and diverting some of the incomes.

HUF transactions should be thought through and planned properly. You can also take help from a CA or a tax expert just to be sure that there are no violations of tax laws.

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Can HUF own any asset?

Any assets received in the following situation would form part of the HUF asset pool:

  • ​Assets received on the partition of a larger HUF of which the coparcener was a member. For eg., Mr B is a coparcener in a HUF in which his father Mr A is the Karta. Now in case of partition of that HUF, the assets received by Mr B will form part of his own HUF.
  • ​Assets received as gifts by the HUF from relatives and friends.
  • ​Assets received by way of inheritance through a will.
  • ​Any member of the HUF can transfer or bring his / her individual assets to HUF asset pool. However, it won’t be beneficial to the individual member since the transfer of asset will not result in the transfer of Tax Liability on income from such asset. So the income from such transferred assets will continue to be taxed in the hands of the individual members.

Partitions of HUF

Partition in HUF is the most common way of reducing the Tax Incidence in HUF.

In Hindu law, these partitions can be either Total or Partial.

In Total Partition, all the members will cease to be the ‘members’ of a HUF and the property will be distributed amongst them. After complete partition, the members will continue to be taxed as individuals.

In Partial Partition, only the members willing to leave will cease to be the members of HUF and the rest will continue to be the members of HUF.

However, according to the Income Tax Act, there’s no concept like Partial Partition. So there’ll either be Total Partition or no partition.

FAQs

Who is responsible for filing HUF return?

Karta is responsible for filing the HUF return. The due date for filing HUF return is the same as individual i.e 31st July. Karta is also required to verify the HUF return.

Can husband and wife form HUF?

Any Hindu, Sikh, Buddhist or Jain can form a HUF. A husband and his wife can form a HUF but the wife only gets to be the member and not a co-parcener. However, if the family has a child, only then they will be able to claim benefits of HUFs.

Can a salaried person open HUF account?

Yes. Salaried Individuals can open a HUF account as soon as he is married. However to enjoy the Tax Deductions he should have a child.