India

Individual - Deductions

Last reviewed - 29 June 2020

Employment expenses

A standard deduction of INR 50,000 is available while computing the taxable salary income.

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 of 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 oneself, 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.
    • An additional deduction up to 10% (14% in case of contribution made by Central Government) of salary is available in respect of employer’s contribution to the NPS.
    • At the time of retirement, an individual can withdraw a lump-sum of up to 60% of the corpus fund and the balance of 40% is required to be invested in an annuity plan. Such withdrawal of up to 60% of the corpus fund is exempt from tax. This applies to all subscribers. Further, nothing would be taxable if the amount is received by the nominee due to death.
    • In case of partial withdrawal from the 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 and charitable institutions in excess of INR 2,000 is to be allowed only if the donation is made otherwise than in cash. Effective 1 April 2020, a donee receiving donations will now have to prepare the statement and file it in a manner prescribed in this regard. Deduction to a donor shall be allowed subject to verification to enhance transparency.

    A special fund, the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund), has been set up for providing relief to the persons affected from the outbreak of COVID-19. Donations made to the PM CARES Fund shall be eligible for 100% deduction under the Income-tax Act without any upper limit.

    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 25,000 (INR 50,000 where any of the insured persons is a senior citizen). Further, an additional deduction of INR 25,000 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 oneself, 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.

      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 Long-term capital gain only 8