Deduction from Salary Income | Sec. 16 | Sec. 80(c)

[Deduction from Salary Income, Deduction u/s 16, Deduction from Total Income u/s 80 (c), Income Tax Act 1961]

Deductions from Salaries [Section 16]

While computing the salary income an employee, the following three deductions are allowed under section 16:

i. Standard Deduction [Section 16 (ia)]: Standard deduction of Rs. 50,000 from the Assessment year 2020-21 is allowed to every employee.

ii. Entertainment Allowance [Section 16 (ii)]: Entertainment allowance is fully exempted for non-government employees. But in case of a government employee’s a deduction is allowed u/s 16(ii) at the least of the following:

a)      Statutory limit: 5000

b)      1/5th of basic salary

c)       Actual entertainment allowance

iii. Tax on Employment (Professional Tax) [Section 16 (iii)]: As per the Constitution of India, the State Governments/Local Authorities are empowered to make law and collect taxes on professions, trades, callings and employment.

Deduction under Sec. 80C

This deduction is in respect of amounts paid as Life Insurance premiums, ULIP, CTD, Contribution to Provident Fund, Superannuation Fund, Public Provident Fund, etc., amounts invested in N.S.C. VI, VII and VIII Issues, repayment of loan taken for purchase or construction of a residential house, etc.

Deduction under Sec.80C is to be given only to Individuals and Hindu Undivided Families. The following are the investments eligible for qualifying amount under this section. The following amounts are qualified to get deduction under Sec.80C:

(i) Life Insurance Premium: Actual amount paid towards Life Insurance policy premium subjects to a maximum of 10% of capital sum assured (20% for policy is taken before 1-4-2012) to himself, spouse or children (minor or major, married or unmarried). It also includes a step or adopted children. Sum assured shall not include bonus or any premium agreed to be returned. In case of HUF actual amount of premium paid in the name of any or all the co-parceners of the HUF also eligible for deduction.

(ii) Annuity: Amount contributed towards a contract for a deferred annuity; not being an annuity plan.

(iii) Statutory Provident Fund: Any contributions by an individual to any provident fund to which Provident Funds Act, 1925 applies;

(iv) Other Provident Funds: Contribution to public provident fund to himself, spouse or children.

(a) Contribution by an employee to a recognized provident fund;

(b) Contribution by an employee to an approved superannuation fund;

(v) As subscriptions to any notified security of the Central Government;

(vi) Investments in National Savings Certificates VI, VII and VIII Series;

(vii) Any amount invested by a person with UTI or LIC under a unit-linked insurance plan.

(viii) Contribution to Unit-linked Insurance Plan of the LIC, Mutual Fund notified under section 10(23D).

 (ix) Deposit Scheme of National Housing Bank and Others: Subscription to any deposit scheme or as a contribution to any such fund set up by the National Housing Bank;

(x) Tuition fee to children: Any sum paid by an individual as tuition fees to any university, college or school or other educational institution situated in India for full-time education in respect of any two children of the assessee.

(xi) Subscription to equity or debentures: Any subscription by an individual or HUF to equity shares or debentures forming part of any eligible issue of capital approved by the Board of a wholly public company any public financial institution where such proceeds are utilized for infrastructure company.

(xii) House Loan principal amount repayment

(xii) Fixed Deposit in Banks and post offices: Fixed deposits for not less than 5 years in scheduled banks is eligible for deduction under this section.

(xv) NABARD Bonds: Subscriptions to bonds of NABARD are also eligible for deduction under section 80 C.

Amount of Deduction: The amount of deduction to be given is as follows :

(i) Qualifying amount; or

(ii ) ` 1,50,000 - whichever is less.

Qualifying Amount: The amount of deduction shall be the actual amount paid or deposited during the previous year in prescribed savings schemes stated above. This amount is called a qualifying amount. According to Section 80 CCE, the amount of deduction under section 80 C, 80 CCC, and 80 CCD should not exceed 1,50,000.