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India Individual - Deductions

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Employment expenses

A standard deduction from salary income up to INR 40,000 in lieu of reimbursement of medical expenses and transport allowance has been given. Simultaneously, tax exemptions on transport allowance of INR 19,200 and medical reimbursement of INR 15,000 have been discontinued effective tax year 2018/19.

Deduction from total income

Personal deductions

  • No deductions are available for interest or taxes paid to tax authorities. Deductions, up to certain limits, are allowed for contributions to approved charities and, to a very limited extent, allowances for children’s education/hostel expenses received from the employer.
  • A deduction from income is available up to INR 150,000 for investments made in the tax year in certain eligible schemes in India, namely:
    • Life insurance premium on the life of self, spouse, or any child.
    • Contribution by employee to recognised provident fund.
    • Contribution to public provident fund/National Pension System (NPS).
    • Contribution to a tax plan of an Indian mutual fund.
    • Tuition fees of any university, college, school, or other educational institution in India for the purpose of full-time education of the individual, spouse, or any child.
    • Repayment of housing loan (principal), etc.
  • An additional deduction of up to INR 50,000 over and above the aforesaid limit of INR 150,000 will also be available on the individual’s contribution to a notified pension scheme of the government (i.e. NPS).
  • An additional deduction of up to 10% of salary is available in respect of employer’s contribution to NPS.
  • Withdrawal from NPS of up to 40% of the accumulated balance on retirement, when an individual opts out of the scheme, is exempt from tax. This applies to all subscribers. However, nothing would be taxable if the amount is received by the nominee due to death.
  • In case of partial withdrawal from NPS by employees, 25% of their own contribution is exempt from tax in the year of withdrawal.

Charitable contributions

On donation of a certain amount to certain approved funds, charitable institutions, etc., an individual can claim a deduction of 50% to 100% of the amount donated, subject to restrictions provided by the law. Deduction for funds, charitable institutions, etc. in excess of INR 2,000 is allowed only if the donation is made otherwise than in cash.

Education expenses

An individual can claim a deduction for interest paid on a loan taken for the purpose of his/her higher education or of his/her relative (spouse, children, or student for whom the individual is the legal guardian). It should be noted that the interest is paid by the individual out of his/her taxable income.

Medical insurance premium

  • A deduction is available for health insurance premiums or contributions made to an approved insurance scheme by an individual for insuring the health of oneself, spouse, and dependent children. The deduction available is up to INR 30,000 (INR 50,000 where any of the insured persons is a senior citizen). Further, an additional deduction of INR 30,000 is available for insuring one’s parents (INR 50,000 where either of the parents is a senior citizen).
  • An amount of up to INR 5,000 spent on preventive health check-up of self, spouse, dependent children, and parents is also eligible for deduction within the overall limit provided above.
  • The medical expenditure incurred for senior citizens (60 years and above) will be deductible up to INR 50,000 if no payment has been made towards any existing health insurance policy for such individuals.

Deduction on housing loan interest

Income from house property shall be reduced by the amount of interest paid on borrowed capital where the loan has been taken for the purpose of purchase/construction/repair/renewal/reconstruction of the residential house property. However, no deduction shall be allowed unless the individual furnishes a certificate from the person to whom the interest is payable on the capital borrowed, specifying the amount of interest payable by the taxpayer for the purpose of such acquisition or construction, etc. of the property.

Unlike the deduction on property taxes or principal repayment of home loan, which are available on actual payment basis, the deduction on interest is available on an accrual basis (i.e. it is immaterial whether the interest has been actually paid or not during the year). Charges like service fees or other charges in respect of the loan amount related to the housing loan are eligible to be included in interest and qualify for tax deduction.

Deduction on housing loan can be claimed once the construction is completed and possession of the property has been obtained. The law provides a deferred deduction on the interest payable during the pre-construction period (i.e. period prior to the tax year in which the property has been acquired or constructed). The deduction on such interest is available equally over a period of five tax years starting from the year of acquisition/construction.

Maximum limit of deduction

In case the house property is not let out during the year, the maximum amount of interest that can be claimed as deduction is limited to INR 200,000, subject to conditions that the loan is taken on or after 1 April 1999 for the purpose of purchase or construction and such property is acquired or constructed within five years from the end of the year in which loan was taken. For all other cases, where the house property is not let out, the maximum amount that can be claimed as deduction is limited to INR 30,000.

Personal allowances

There are no personal allowances apart from the limited deduction for certain hardship-related cost of living allowances in connection with postings in specified hilly, border, remote, or tribal areas.

Business expenses

Expenses relating to business income are allowed as a deduction from that income. Expenses incurred in relation to exempt income are not allowed as a deduction.

See the Deductions section in the Corporate tax summary for more information on business expenses.

Losses

Type of loss to be carried forward to subsequent year(s) Income against which loss can be offset in the subsequent year(s) Number of years for which loss can be carried forward
Loss under the heading ‘Income from house property’ ‘Income from house property’ only 8
Speculation business loss Speculation profits only 4
Unabsorbed depreciation Any income, except salary Perpetually
Business loss (other than speculation business losses) Any business profit 8
Short-term capital loss Any income under the head ‘capital gains’ 8
Long-term capital loss (non STT paid) Long-term capital gains only (non STT paid) 8


Last Reviewed - 13 July 2018

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