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Income Tax Exemptions and deductions, give you plenty of opportunities to save tax. By using wisely these exemptions and deductions, you can reduce your tax out-go. In this post, I am listing the available exemptions, and deduction under income tax act.

Allowances Exempted Under Section 10 of Income Tax Act 1961


1. House Rent Allowance (HRA) 

You get a  job and shift to another city. Because of your job, you live in a different place. You are forced to live in a rented accommodation. The rented flat is not by choice but because of the duty. Hence, the expense on rent is because of your job. You can’t avoid this, even if you wish. Therefore, government exempt the rent from income tax. However, your employer must pay the  house rent allowance. 
          Exemption of HRA is a  minimum of these three.         
           Actual HRA received.                           
                              Rent paid less 10% of salary.

                            40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi).  In this case, salary is basic plus dearness allowance (basic+DA).Download HRA Calculator

Leave Travel Allowance :- LTC or LTA is exempted if the same is actually spent


Transport Allowance


You daily go to your office or workplace from you house. You also spend on the local transport. This expenditure is also forced upon you. Therefore, the government has exempted transport allowance from the income tax, provided your employer gives you the transport allowance. As per the Finance Budget 2015 Raised this  tax exemption is Rs 1600/- Per Month.

Children Education Allowance


Children Education allowance in also exempted from income tax. Your employer must give this allowance for availing the tax exemptions. It is Rs. 100 per month per child up to a maximum of 2 children.

Hostel Allowances [ For One Children Rs. 300 P.M.]


This is another tax exemption related to your child’s education. It is Rs. 300 per month per child up to a maximum of two children.

Income Tax Exemption on Interest Paid on Housing Loan U/s 24B


This Exemption  is also related to your accommodation because of the job. After shifting to a different place, you may opt  for your own house instead of rented accommodation. If you take  home loan for the house, the interest payment is  tax exempted. You can get maximum exemption of  Rs 2 lakh on  housing loan interest.  There are some conditions for this exemption.

The house should be self-occupied. You may get this exemption if your home is under  construction. however the  construction should complete within 3 years.

Tax Deduction Under Section 80C


The Government wants to encourage some certain types of investments and expenses. To achieve this goal it gives the benefit of tax deductions. There are many investments and expenses under section 80C, 80CCC and 80CCD. However, the total deductions under this section are limited to Rs 1.5 lakh.

·                                 Employee Provident Fund

·                                 Pension/ Annuity Schemes

·                                 Life insurance premium

·                                 Tax Saving mutual fund (ELSS)

·                                 Home loan principal payment

·                                 Tuition fees of children

·                                 PPF Account Contribution

·                                 National Saving  Certificate

·                                 Tax-saving fixed Deposit

·                                 Sukanya Samriddhi Scheme ( For below 10 Years Girl Child)

·                                 Post office time deposits

Section 80CCC: Deduction For Annuity Plan


You can also get a deduction for the annuity plan of insurance companies. There are some limitations on this deduction.

·                                 You can’t contribute more than 10% of your salary or gross income.

·                                 You can’t enjoy the deduction of more than Rs 1 lakh in a year.

Section 80CCD(1) :  Contribution For Pension Plan


Similar to annuities, contribution in pension plans is also eligible for tax deduction. For example contribution to National Pension Scheme (NPS) will get deduction benefit under this rule. It is also limited to 10% of salary or 10% gross income (if not salaried).

Section 80CCD(2): Contribution To Pension Plan By employer


This section gives you extra tax saving opportunity. If your employer contributes into your pension plan, it would be also tax-free. This contribution does not come under the overall limit of 1.5 lakh.


Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)


 This scheme also gives you the extra tax saving. To avail this benefit, you must be   the first-time investor in the share market. Your annual income should not be      more than Rs 10 lakh. You can invest up to Rs 50,000 under this scheme.        However, the tax deduction would be available for the 50% of your     investment. So, if you invest Rs 50,000, you will get the tax deduction of      only Rs 25,000. There is some mutual fund scheme which is designed for        RGESS. However, due to the complex rules,  it could not become popular.

Section 80D:  Medical Insurance Deduction


Maximum Limit for general Rs. 25,000/- and Sr.Citizen above 60 Years old Rs. 30,000/- [ Raised As per Finance Budget 2015]

Section 80E: Deduction on Loan for Higher Studies


Like the home loan interest, one can also claim income tax deduction for education loan interest.

                            You must take education loan from a financial institution.      
                       You can avail this tax deduction maximum of 7 years.
            You can take the benefit of this deduction only for the higher education.

                         You can take this benefit only for the education of self, spouse or children. If you are the legal guardian of a student, you can also take this benefit.

Section 80G: Deduction for Donations


The donations specified in Section 80G are eligible for deduction. The deduction may of 100% of donation or 50%, It depends upon the type of receiver.

Section 80GG: Deduction on House Rent Paid 

This deduction is for those, who don’t get the house rent allowance from their employer. Such person can avail this deduction according the specified rules. 
    Deduction is the least of   
    Rent paid less 10% of total income   
    Rs. 2000/ month, i.e. Maximum Deduction available is   
    24,000. 25% of total income

There are some conditions for this benefit.

·                                 Assessee or his spouse or minor child should not own residential accommodation at the place of employment.

·                                 He should not get a house rent allowance (HRA).

·                                 He should not have self occupied residential premises in any other place.

Section 80TTA: Saving Account Interest Deduction


Interest earned on a saving account is not added in taxable income, if it is less than Rs 10,000 in a financial year.

Section 80U: Deduction For Disabled


Under section 80U a person with disability gets extra deduction from his/her taxable income. Such person can deduct Rs 75,000 from the taxable income. In case the disability is severe, the deduction is up to Rs 1,00,000. To avail this deduction one should obtain a certificate from the government doctor.

U/s 87A :- Tax Rebate Rs.2,000/- who’s taxable Income less than 5 Lakh.