Deductions and exemptions — CFP RTPS

Deductions reduce taxable income (Old regime mostly). CFPs must know all available deductions, exempt and exempt income items, and the practical workflow for maximising them. This module is technical but high-impact for client outcomes.

Foundation

Major deductions in Old regime: • 80C: ₹1.5 lakh cap. Includes ELSS, PPF, EPF, LIP, home-loan principal, tuition, NSC, etc. • 80D: health insurance ₹25K self+family + ₹50K parents-senior • 80E: education-loan interest (no cap, 8 years) • 80G: donations (50-100% depending on charity type) • 80CCD(1B): NPS Tier I extra ₹50K above 80C • Home loan interest: ₹2 lakh self-occupied; unlimited let-out • HRA: variable on salary structure and rent paid • LTA: 2 trips per 4-year block, only travel cost New regime allows: standard deduction ₹50K (post-Budget 2024), 80CCD(2) employer NPS. Most others removed.

Deep Dive

Less obvious deductions: • 80TTA: ₹10K savings interest exemption (under 60) • 80TTB: ₹50K seniors all interest (60+) • 80U: disability • 80DDB: specified diseases up to ₹1 lakh • 80GG: rent without HRA, ₹60K cap (or 25% of total income, whichever lower) • 80GGA: donations to scientific/rural research • 80GGC: political donations (fully deductible) Section 24 (Home loan interest): • Self-occupied: ₹2 lakh per year cap • Let-out: unlimited (capped against rental income; loss can be carried forward) HRA exemption = least of: • Rent paid − 10% basic • HRA received • 50% basic if metro (40% if non-metro) LTA exemption: actual travel cost only (not boarding/lodging). 2 trips per 4-year block.

Worked example

Worked example — Mr. Iyer's comprehensive 80C and other deductions Mr. Iyer, 32, ₹18 lakh annual salary, has: • Apartment (self-occupied) with home loan • Married with 2 children (school-age) • Old regime Deductions claimable: 80C (₹1.5 lakh cap): • PPF contribution: ₹1.5 lakh ✓ • ELSS SIP: ₹50K (would be additional but cap reached) 80CCD(1B) NPS Tier I: ₹50K 80D: Health insurance for family: ₹25K 80D: Senior parents' health insurance: ₹40K 80E: Education loan interest (still paying): ₹35K Section 24: Home loan interest: ₹1.8 lakh HRA exemption: ₹0 (self-occupied) LTA: ₹40K (claimed in current year) Standard deduction: ₹50K Gross deductions: 1.5 + 0.5 + 0.25 + 0.4 + 0.35 + 1.8 + 0.4 + 0.5 = ₹5.7 lakh Taxable income: 18 − 5.7 = 12.3 lakh Old regime tax: 0% × 2.5 + 5% × 2.5 + 20% × 5 + 30% × 2.3 = 12.5K + 1L + 69K = ₹1.815 lakh Plus cess 4%: ₹1.89 lakh New regime equivalent: Gross 18L − 50K standard deduction − 50K 80CCD(2) (if available) = 17L taxable Tax: 0 + 20K + 30K + 30K + 60K + 30%(2L) = 1.4L + 60K = ₹2L Plus cess 4%: ₹2.08 lakh Old saves ~₹19K; with strong deductions, Old wins for Mr. Iyer. CFP's value: ensures ALL deductions are captured; many clients miss 80E or 80CCD(1B) or LTA.

Real-world scenario

Real-world scenario — Mrs. Kapoor's missed 80GG Mrs. Kapoor, 28, freelance designer in Mumbai. Self-employed, no salary structure, no HRA. She pays ₹35K monthly rent (₹4.2 lakh/year). Total income: ₹15 lakh. Deductions claimed via her CA: • 80C: ₹1.5 lakh (PPF, ELSS) • 80D: ₹25K • Total: ₹1.75 lakh When her CFP reviewed, found 80GG missed: • 80GG: rent paid without HRA • Cap: least of (₹60K, 25% of total income, rent − 10% of total income) • 25% of 15L = ₹3.75 lakh; rent − 10% = 4.2 − 1.5 = ₹2.7 lakh; ₹60K cap • Deduction: ₹60K Tax saving (30% bracket): ₹60K × 30% × 1.04 (cess) = ₹18,720 For 5 prior years (revised return possible): potentially ₹90K cumulative recovery. Mrs. Kapoor was paying ₹35K/month rent for 8 years; her CA never asked about HRA structure (which freelancers don't have). 80GG was the alternative deduction available but never claimed. Lesson: CFPs systematically check ALL available deductions, including unusual ones. Specifically asking "do you pay rent without receiving HRA?" catches 80GG.

Advanced

Practitioner techniques: 1. Stamp duty + registration on home in 80C — often missed by first-time buyers. 2. HRA + home-loan interest — both can be claimed if living in rented and own a let-out property in another city. 3. 80D preventive checkup ₹5K (within broader limit). 4. 80E up to 8 years post-completion of course (often missed). 5. 80GGC political donations — under increased scrutiny but still deductible if to registered party (200K+ requires reporting; political party must be registered). 6. For ₹50L+ incomes, surcharge management via deductions is high-leverage — every ₹1L of deduction can save ₹40-50K of tax. For self-employed: Section 44ADA — presumptive taxation for professionals (CAs, doctors, lawyers, etc.) — 50% of gross is deemed profit. Simpler tax filing for income up to ₹50 lakh. Tax-saving instruments and their relative attractiveness: • PPF: 7.1%, EEE, 15-year lock — best for long-horizon retirement • ELSS: equity, 3-year lock, ~12% historical — best for growth + tax • NSC: ~7%, 5-year lock — modest • Tax-saving FD: ~6.5-7%, 5-year lock — typically inferior • Life insurance premium: covered under 80C but surrender often suboptimal — use term insurance, not endowment

Regulatory references

Income Tax Act Sections 80C, 80CCD(1B), 80D, 80E, 80G, 80GG
Section 24 (home-loan interest)
Section 16 (standard deduction)
Income Tax Rules on HRA computation
CBDT FAQs on deductions

Common mistakes & pitfalls

Not maximising 80C — many leave gap below ₹1.5 lakh.
Forgetting 80CCD(1B) — extra ₹50K that's commonly missed.
Missing 80E (education-loan interest) for up to 8 years.
Not claiming HRA + home-loan interest both when applicable.
Ignoring 80GG for rent without HRA.

Frequently asked

Can I claim both HRA and home-loan interest?

Yes, if you live in rented home AND own a property let out in another location. Both deductions allowed simultaneously. Cannot claim HRA + home-loan interest for self-occupied home in same city — you're considered to "live" in that home regardless of physical location.

Is 80GGC political donation safe to claim?

Yes, if donation is to a SEBI-registered political party. Cash donations >₹2,000 not deductible (2017 amendment). Track receipts. Recent enforcement focus on suspicious donation patterns.

What's the limit for 80E education-loan interest?

No cap on amount; can be claimed for up to 8 years from start of repayment. Both principal and interest are repaid; only interest is deductible. Loan must be from approved financial institution or charitable organisation.

Practice questions

Click each question to reveal the answer and explanation.

Q 1

Section 80C maximum deduction is:

(a)₹50,000
(b)₹1.5 lakh
(c)₹2 lakh
(d)₹3 lakh

Correct: (b) ₹1.5 lakh

80C caps at ₹1.5 lakh per year per individual. Includes PPF, EPF, ELSS, LIP, home-loan principal, tuition, etc.

Q 2

Section 80CCD(1B) allows additional NPS deduction of:

(a)₹25,000
(b)₹50,000
(c)₹1 lakh
(d)₹2 lakh

Correct: (b) ₹50,000

₹50,000 additional deduction over and above 80C's ₹1.5 lakh cap. Specifically for NPS Tier I voluntary contribution.

Q 3

Health-insurance premium deduction (Old regime, self+family + parents-senior):

(a)₹25K + ₹25K
(b)₹25K + ₹50K
(c)₹50K + ₹50K
(d)₹1 lakh fixed

Correct: (b) ₹25K + ₹50K

Section 80D: ₹25K self+family + ₹50K for parents (if senior, 60+). Total ₹75K maximum. Includes preventive health checkup ₹5K within these limits.

Q 4

HRA exemption is the LEAST of:

(a)Salary
(b)Rent paid OR HRA received OR formula-based amount
(c)Total deductions
(d)Income

Correct: (b) Rent paid OR HRA received OR formula-based amount

HRA exemption = least of: rent paid − 10% basic, HRA received, or 50% basic (metro) / 40% (non-metro). The least amount is exempt; balance is taxable.

Q 5

Education-loan interest under 80E can be claimed for:

(a)3 years
(b)5 years
(c)8 years from start of repayment
(d)Indefinitely

Correct: (c) 8 years from start of repayment

80E education-loan interest deductible for up to 8 years from start of repayment (or until loan paid, whichever earlier). No cap on amount. Often missed by clients with old education loans.

Educational purposes only. The numbers, returns, and examples used in this lesson are illustrative. Past performance does not guarantee future results. Mutual fund and securities investments are subject to market risks. This lesson is not investment advice; for advice tailored to your circumstances, consult a SEBI-registered Investment Adviser. Read our full disclaimer.