Tax Deduction in India – Notes by Home Academy
Latest Provisions as per Union Budget 2025–26 & FY 2026–27
✔ Focused for JKSSB, SSC, UPSC, UGC NET & Banking Exams
✔ With Sections, Examples, Important Points & MCQs
1. Meaning of Tax Deduction
Tax deduction refers to amounts or expenses that can be subtracted from your gross total income before calculating income tax.
Deductions reduce your taxable income, which directly lowers your tax liability.
Tax deductions are governed by different sections of the Income Tax Act, 1961.
2. Difference Between Deduction & Exemption
| Feature | Deduction | Exemption |
|---|---|---|
| Reduces | Gross total income | Total income |
| Taken before | Tax calculation | Final income computation |
| Examples | Section 80C, 80D | House Rent Allowance, LTA |
3. Important Tax Deduction Sections under the Income Tax Act
Section 80C – Most Important (Limit ₹1.5 lakh)
This section covers the largest group of deductions.
Allowed Investments & Payments:
Life Insurance Premium
Employee Provident Fund (EPF)
Public Provident Fund (PPF)
National Savings Certificate (NSC)
5-Year Bank FD (Tax Saver)
Tuition fees (for children)
Principal repayment of home loan
Maximum Deduction: ₹1,50,000 per year
Example: If you invest ₹1,20,000 in PPF + ₹30,000 in life cover premium → only ₹1,50,000 is allowed.
Section 80CCC
Premium paid for annuity plans of LIC and other insurers.
Allowed within the overall 80C limit of ₹1.5 lakh.
Section 80CCD(1)
Contribution to National Pension System (NPS)
Deduction up to 10% of salary (employee) or 20% (self‑employed).
Also within 80C overall limit.
Section 80CCD(1B) – Extra NPS Deduction
Additional deduction for NPS (Tier‑I) contributions up to ₹50,000.
Important: This is over and above the ₹1.5 lakh 80C limit.
Section 80D – Medical Insurance Premium
Deduction for premium paid for yourself, spouse, kids, and parents.
Limits:
Self & family (without parents): up to ₹25,000
Parents (below 60): ₹25,000
Parents (above 60 / senior citizen): ₹50,000
Total maximum: ₹1,00,000 (with both you & parents senior citizens)
Example: Pay ₹30,000 for parents’ health insurance (above 60) → full ₹30,000 deductible under 80D.
Section 80E – Interest on Education Loan
Deduction for interest paid on education loan for higher studies.
No cap on amount; allowed for a maximum of 8 years or till interest runs out, whichever is earlier.
Section 80EEA – Home Loan Interest for Affordable Housing
Deduction up to ₹1,50,000 for interest on home loan if house value and loan conditions satisfy govt criteria.
Section 80TTA / 80TTB – Interest Income Deduction
80TTA (for non‑senior citizens):
Deduction up to ₹10,000 on interest from savings bank accounts.
80TTB (for senior citizens only):
Deduction up to ₹50,000 on interest from savings and fixed deposits.
Section 80G – Donations to Charities
Donations to specified funds and charities are deductible.
Different NGOs and funds have 100% or 50% deduction with or without restrictions.
Chapter VI‑A Overall Limit
Total deduction (except 80CCD(1B), 80E, 80G, etc.) is generally subject to the ₹1,50,000 limit under 80C.
4. Examples of Tax Deduction Calculation
Example for 80C + 80CCD(1B) + 80D
Gross Income: ₹10,00,000
80C investments: ₹1,50,000
80CCD(1B) NPS: ₹50,000
80D premium: ₹30,000
Taxable income = 10,00,000 – (1,50,000 + 50,000 + 30,000)
= ₹7,70,000
This reduces tax slab exposure and lowers tax.
5. Important Exam‑Ready Points
● Section 80C – Maximum ₹1.5 lakh deduction.
● 80CCD(1B) – Extra ₹50,000 for NPS over 80C.
● 80D – Medical insurance premium deduction up to ₹1,00,000.
● 80E – Interest on education loan (no upper limit).
● 80TTA / 80TTB – Interest income deduction up to ₹10,000 / ₹50,000.
● 80G – Donations (100% or 50% based on NGO status).
● Section 80EEA – Home loan interest deduction up to ₹1,50,000 for affordable housing.
6. Latest Budget 2026 Updates (Exam Focus)
✔ No change in deduction limits under Sections 80C, 80D, 80E, 80CCD.
✔ Standard deduction for salaried taxpayers remains ₹75,000.
✔ Additional rebate under Section 87A benefits incomes up to ₹12 lakh (zero tax in many cases).
✔ Emphasis on NPS and long‑term savings continues.
7. MCQs on Tax Deduction
Question 1
Under which section can you claim an extra deduction of ₹50,000 over the 80C limit for NPS contribution?
A. Section 80D
B. Section 80G
C. Section 80CCD(1B)
D. Section 80TTA
Answer: C
Explanation: Section 80CCD(1B) allows an additional deduction of ₹50,000 for NPS contributions over the regular 80C limit.
Question 2
Which section provides deduction for medical insurance premium?
A. Section 80C
B. Section 80D
C. Section 80E
D. Section 80G
Answer: B
Explanation: Section 80D allows deduction for health insurance premium paid for self, family, and parents.
Question 3
Interest on an education loan is deductible under:
A. Section 80TTA
B. Section 80E
C. Section 80G
D. Section 80CCD
Answer: B
Explanation: Section 80E covers interest paid on education loans for higher studies.
Question 4
Which section allows deduction of up to ₹10,000 on savings bank interest for non‑senior citizens?
A. Section 80TTA
B. Section 80TTB
C. Section 80E
D. Section 80G
Answer: A
Explanation: Section 80TTA applies to interest earned from savings bank accounts for non‑senior citizens.
Question 5
Donations made to eligible charities are deductible under which section?
A. Section 80C
B. Section 80E
C. Section 80G
D. Section 80TTA
Answer: C
Explanation: Section 80G allows deductions for donations to specified charities and funds.
8. Quick Revision Table
| Section | Purpose | Maximum Deduction |
|---|---|---|
| 80C | Investments & payments | ₹1,50,000 |
| 80CCD(1B) | NPS extra | ₹50,000 |
| 80D | Medical insurance | ₹1,00,000 |
| 80E | Education loan interest | Unlimited (time limit applies) |
| 80TTA | Savings account interest (non‑senior) | ₹10,000 |
| 80TTB | Interest income (senior citizens) | ₹50,000 |
| 80EEA | Home loan interest (affordable) | ₹1,50,000 |
| 80G | Donations | 50% / 100% per NGO status |