Salaried Employees: Unlock Maximum Tax Savings with These Deductions
The Income Tax Act permits three deductions from the salary income, which are:
- Standard Deduction
- Professional Tax Deduction and
- Entertainment Allowance Deduction.
Only Standard Deduction is allowed to every employee whose income is taxable under the head salary. Whereas, the other two deductions (Professional Tax Deduction and Entertainment Allowance Deduction) are allowed but under certain conditions.
Standard Deduction
Standard Deduction is a type of deduction provided by the Income Tax Act that permits an individual to lower the tax to be paid by subtracting a particular amount of sum from his/her total gross income. This deduction is accessible to all employees making salary income, including retired employees making pension income. There are no restrictions on claiming Standard Deduction and employees are not required to submit any document to claim this.
The deduction is equal for all employees with a specific amount of Rs. 50,000 disregarding of the salary drawn. However, from April 1, 2025 the Finance Act 2024 increased the amount of standard deduction from the earlier Rs. 50,000 to Rs. 75,000 in a case where the assessee employee computes under the income tax under the new tax regime.
Entertainment Allowance
It is a taxable allowance received by an employee. If this entertainment allowance is received by a Government employee, a deduction is permitted to him/her while computing the taxable income under the salary head. But no deduction is allowed to taxpayers who are not employees of any Central or State Government.
The amount of deduction permitted to the Government employee for the Entertainment Allowance should be lower than the following:
- Rs. 5,000
- Actual amount of entertainment allowance received during the previous year
- 20% of salary exclusive of any allowance, benefit, or other perquisites
Professional Tax
Professional tax is a state-level tax imposed on income earned by employees, Professionals, traders and individuals. Even if paid in advance, the professional tax paid during the year is deductible from the salary income.
If the employer pays the professional tax out of his pocket, without deducting it from the employee’s salary, then it will be first included in the employee’s income as a benefit. After that, a deduction on such professional tax is permitted from the gross salary.
Deduction Allowed to Salaried Employee (Chapter VI-A)
Section 80C
Under section 80C, Common investments or expenditures for which the deduction is allowed are mentioned below:
- Payment for life insurance premium
- Amount paid under a contract for a Deferred annuity (also known as Fixed period annuity)
- Contribution to Public Provident Fund Account
- Contribution to an approved superannuation fund
- Subscription to any notified security or notified deposit scheme (Sukanya Samriddhi Account Scheme)
- Subscription to notified saving certificates
- Contribution to notified unit-linked insurance plan
- Tuition fees for full-time education of any two children
- Specific payments for the purchase and construction of residential house property
- Notified annuity plan of LIC or other insurers
- Investment in Equity-Linked Saving Scheme
- Term deposits for a fixed period of not less than five years with a scheduled bank
- Deposit in Senior Citizen Saving Scheme
- Contribution to Tier-II NPS account by central government’s employees.
- Contribution to the Employees’ or Recognised Provident Fund
- Exemption: (Under Sections 80C, 80CCC and 80CCD(1)) Up to Rs. 1,50,000 under the overall limit of Rs. 1,50,000
Section 80CCC
Contribution to certain specified Pension Funds of LIC and other insurers (under certain conditions)
- Exemption: (Under Sections 80C, 80CCC and 80CCD) Up to Rs. 150,000 under the overall limit of Rs. 150,000
Section 80CCD
Contribution to the New Pension Scheme (NPS) notified by the Central Government (Under certain conditions)
Exemption:
- Amount contributed to a pension scheme or 10% or 14%, as the case may be, of salary/gross total income, whichever is less (under the ceiling limit of Rs. 1,50,000 as provided under Section 80CCE), will be permitted as a deduction under Section 80CCD(1)
- An additional deduction to the extent of Rs. 50,000 will also be available to the assessee under section 80CCD(1B). The additional deduction is not subject to a ceiling limit of Rs. 150,000 as given under Section 80CCE.
- Under section 80CCD(2), contributions made by the employer will also be permitted as a deduction while computing the total income of the employee. But the amount of deduction could not exceed 14% of the salary in the case of state or central govt employees and 10% or 14% in any other employee’s case.
Note: Under Section 80CCD(1B), the advantage of an additional deduction of upto Rs. 50,000 is also available for the amount deposited to the account of a minor by a parent or guardian; this will come into force from AY 2026-27.
Section 80CCH
Amount paid or deposited in the Agniveer Corpus Fund by the assessee and contribution made by the Central Government to such fund.
- Exemption: The Whole of the sum paid/deposited
Section 80D
Amount that is paid in any mode other than cash to LIC or other insurers to effect or keep in force an insurance on the health of a specified person, such as Self spouse, dependent children or parents. A person can also make payments to the Central Government health scheme and an account of preventive health check-ups.
Note:
- Deduction for preventive health check-up will not exceed Rs. 5,000.
- Payment on account of preventive health check-up may be in cash.
- Within the overall limit, deduction will also be permitted up to Rs. 50,000 towards medical expenditure incurred on the health of a specified person.
- Exemption: Rs. 25,000 will be permitted. Rs. 50,000 if the parent is a senior citizen
Section 80DD
(a) Any expenditure incurred for the medical treatment, including nursing, training, and recovery of a dependent person with a disability
(b) Any amount paid or deposited under an approved scheme framed in this behalf by the LIC or any other insurer or the Administrator or a person with disability. (Under Certain Conditions)
- Exemption: Rs. 75,000 and Rs. 125,000 in case of severe disability
Section 80DDB
Expenses actually paid for medical treatment of specified diseases and ailments for the assessee himself or wholly dependent spouse, children, parents, brothers and sisters (under certain conditions)
- Exemption: Up to Rs. 40,000 and Rs. 100,000 in the case of senior citizens
Section 80DDB
Expenses actually paid for medical treatment of some specified diseases and ailments for the assessee himself or wholly dependent spouse, children, parents, brothers and sisters (under certain conditions)
- Exemption: Up to Rs. 40,000 and Rs. 100,000 in the case of senior citizens
Section 80E
Amount paid out of income chargeable to tax by way of payment of interest on a loan taken from a financial institution or approved charitable institution for pursuing higher education (under certain conditions)
- Exemption: the amount of interest paid during the initial year and seven immediately succeeding assessment years or until the above interest is paid in full.
Section 80EE
Interest is payable on a loan taken up to Rs. 35 lakhs by the taxpayer from any financial institution, Permitted during the FY 2016-17, for the purpose of acquisition of a residential house property whose amount does not exceed Rs. 50 lakhs.
- Exemption: Deduction of Up to Rs. 50,000 towards interest on loan.
Section 80EEA
Interest payable on a loan taken by an individual, who is not eligible to claim deduction under Section 80EE, from any financial institution during the time beginning from April 1, 2019 ending on March 3, 2022 for the objective of acquisition of a residential house property whose stamp duty amount does not exceed Rs. 45 lakhs.
- Exemption: Deduction of up to Rs. 150,000 towards interest on loan
Section 80EEB
Interest payable on a loan taken by an individual from any financial institution during the period beginning on April 1, 2019 and ending on March 31, 2023 to buy an electric vehicle.
- Exemption: Deduction of up to Rs. 1,50,000 towards interest on loan.
Section 80G
Donations or funds to Specified institution (No deduction will be allowed in respect of donation in cash over Rs. 2,000.)
- Exemption: 50% to 100% of donation made
Section 80GG
Rent paid for furnished or unfurnished residential accommodation (under certain conditions)
- Exemption: Minimum of the following will be permitted as a deduction:
(a) 25% of the Total Income
(b) Rs. 5.00 per month
(c) Rent paid in excess of 10% of total income
Section 80GGA
Donation for scientific research or rural development (No deduction will be permitted in respect of cash contributions over Rs. 2,000)
- Exemption: 100% of the donation made
Section 80GGC
Donation to a political party or an electoral trust (The amount contributed in cash will not be eligible for deduction)
- Exemption: 100% of the donation made
Section 80TTA
Interest on deposits in a savings account with a banking company, a post office, a co-operative society engaged in banking business, etc. (under certain conditions)
- Exemption: 100% of the amount of such income, subject to a maximum of Rs. 10,000
Section 80TTB
Interest on deposits with a banking company, a post office, a co-operative society engaged in banking business, etc. (under certain conditions)
- Exemption: 100% of the amount of such income, subject to a maximum of Rs. 50,000
Section 80U
A resident individual who, at any time during the previous year, is certified by the medical authority to be a person with a disability
- Exemption: Rs. 75,000 and Rs. 125,000 in case of severe disability