Question

Create a list of the deductions that you are eligible for this year, those that might apply in your financial planning timeline 5 years from now, and those that might apply 10 years from now. How can awareness of your eligibility for deductions impact your long-term financial planning?

Answer 1

According to Indian Income Tax Act, 1961, list of deductions that may impact financial planning of salaries Individual are as follows:

1. House Rent Allowance (HRA): HRA benefit is available to a salaried person who is using a rented accommodation. Least of following can be claimed as HRA deduction:

1. Total HRA received from employer
2. Rent paid less 10% of Salary
3. 40% of Salary for non-metro cities and 50% of Salary for metro cities

*Salary means basic salary and dearness allowance.

1. Leave Travel Allowance (LTA): Benefit of leave travel allowance can be obtained twice in a block of four years. LTA Rules are as follows:

i.                     Benefit can be obtained only in respect of domestic travels

ii.                   Only transportation cost of train, air travel and public transport included (Hotel, meal or other cost will not be covered)

1. Standard Deduction: Standard Deduction of INR 50,000/- is allowed.

1. Section 80C, 80CCC: Deduction of aggregate amount of INR 150,000/- can be availed by investing for but not limited to following:

a)                   Premium paid on policies of Life Insurance Corporations

b)                  Employee Provident Funds

c)                   Tax Saving Fixed Deposits for the period of 5 years

d)                  Contribution to Public Provident Funds

e)                  Tuition Fees for upto maximum two children

f)                    Contribution to Superannuation Funds

1. Section 80CCD: Deduction of amount upto 10% of basic salary is allowed if contribution is made to Nationan Pension System by employer.

Additional deduction of INR 50,000/- can also be availed if contribution is made by employee.

1. Section 80D: Deduction upto INR 25,000/- can be availed on payment of premium of Mediclaim Insurance.

Deduction of INR 5,000/- additional is also available on health checkups.

Aggregate deduction of INR 50,000/- is available if Mediclaim Insurance and Health check is taken for senior citizen parents.

1. Interest on Home Loan: Under Section 80C of Income Tax, deduction of amount of interest paid under repayment instalments of home loan is available. Maximum deduction of INR 200,000 is available.

1. Donations made u/s 80G: Deductions is also available to assesses if donations under section 80G is made.