The topics which we will discuss in Chapter VI-A deduction for payroll calculation in this post are:
- Section 80C, 80CCC and 80CCD(1)
- Medical Expenditure and Insurance Premium
- Interest on Home Loan (Section 80C and Section 24)
- Deduction for Loan for Higher Studies (Section 80E)
- Donations (Section 80G)
- Deduction on Savings Account Interest (Section 80TTA)
- Interest on Home Loan (Section 80EE
- Tax treatment on Notice Pay and Joining Bonus
Usually, you may get confused while you are doing the payroll calculation of the Gross total income of an assessee or an employee after considering income from all heads. So, certain deductions are allowed under Chapter VI-A of the Income Tax Act. However, you can go through the details of the Chapter VI-A deduction for Payroll calculation.
Chapter VI-A deduction for payroll calculation
There are the following Chapter VI-A deduction for payroll calculation of Income Tax under TDS –
Section 80C Deduction from total income in respect of various investment
Under section 80C, an individual or Hindu undivided Family (HUF) whose investments in stipulated tax-saving schemes can claim a deduction up to Rs.1.5L.
There are moods to declare as investments to save on income tax. Such as leave travel allowance to deposit, Life insurance premium, ELSS tax saving mutual fund, National saving certificate, etc. Below there you can see the options of investments.
- Mutual Fund – Investment of an employee under mutual funds as (ELSS) Equity Linked Saving Scheme, which qualifies for Tax deduction under section 80C.
- (ULIP) Unit Life Insurance Plan and Life Insurance – That is connected to the market and is paid for the life insurance. And that policy qualifies for Tax deduction under section 80C.
- Home Loan – When you are buying a new home or renovation, that time you will be eligible for tax deduction upto Rs.1.5 Lakh for FY.
- Fixed Deposit (FD) – you can fix your amount for a period of 5 years, that will help you to save your tax.
- (NSC) National Saving Certificate – Under the NSC you fix your amount at Rs.100 for 5 to 10 years. Which is eligible for a tax deduction.
- Sukanya Samriddhi Account
Section 80CCC Pension Fund
- Under section 80CCC, only an individual can claim a deduction for contributions to certain pension funds.
- Deduction up to Rs.1.5L (subject to an overall limit of Rs.1.5L under section 80CCE).
- Contribution to certain specified pension funds of LIC or other insurance.
Section 80CCD National Pension Scheme
This section allows an individual to contribute to the National Pension Scheme or Atal Pension Yojana. This section applies to the age above 18 can claim a deduction up to Rs.1.5 Lakh.
And the contribution made by the employer to NPS under section 80CCD.
- Contribution of employees (Government employees/self-employed/ employed by other employers) to NPS.
Section 80CCD(1) – Deduction up to 10% of Basic + DA. In the case of private and government employees.
- Up to 20% of total gross income, in the case of self-employed people.
- Subject to a ceiling up to Rs.1.5L under section 80CCE.
Section 80CCD(1B) – Additional deduction up to Rs.50,000 to NPS contribution above deduction under section 80CCD(1).
- It is not subject to a ceiling of up to Rs.1.5L under section 80CCE.
- Contribution of the employer from the salary of the employee to NPS (Government employee/ employed by the other employer).
- The contribution made by the employer: Deduction up to 10% of Basic + DA.
- Above deduction under section 80CCD (1) and Section 80CCD(1B).
Section 80C & Section 24 – Interest on Home Loan
- If you have a self-occupied property or home, then you have the option to claim up to Rs.2 lakh as a deduction on interest on the home loan.
- If the property is let out, then you can claim a deduction for the entire interest concerning the home loan.
- The loss from house property then can be set off against other sources of income and is restricted to Rs.2 Lakh.
- A Co-owner can also claim a deduction on interest paid in proportion to their ownership shares in case of a joint home loan.
Section 80D – Medical Expenditure and Insurance Premium
Under section 80D, an Individual and HUF can claim a deduction on medical expenses and insurance premiums. That can be made for self and dependent families.
There is the following limit of deduction and claim under section 80D on medical insurance premiums.
- For individuals above the age of 60 years, dependents parents, children, and spouses – A total amount of Rs. 50,000
- HUF above the age of 60 years, dependents parents, children, and spouse – Total amount of Rs. 75,000
- Any family member above the age of 60 years – Total amount of Rs.1 Lakh.
- If the mediclaim premium is paid for one year in a lump sum, then the deduction will allow for the relevant previous year, which will be equal to a fraction of such lump sum payment.
- Deduction allowed for self, dependent parents, children, and spouses above the age of 60 years.
- The person should be residential
- No payment is to be made on the medical insurance of such persons.
(Section 80E) Deduction for Loan for Higher Studies
Section 80E allowed a deduction for interest on education loans under certain circumstances –
- The loan must be approved by charitable institutions or taken from financial institutions.
- The money is paid out of chargeable income to tax towards interest on loans taken for son, daughter or dependent brother and sister’s higher education.
- The deduction of interest paid can be claimed during the initial assessment year in which the assessee starts to pay the interest and immediately succeeding 7 years or until the interest is fully paid, whichever is earlier.
Donations (Section 80G)
- If an employee makes a donation to specific funds or institutions, then they can claim.
- 100% of the contribution is allowed as a deduction for institutions/funds, and some other institutions/ funds are allowed to contribute 50% as a deduction.
- The contribution that is made as a donation through cash, draft, or checks only can be claimed for deductions.
- Excess Rs.2,000 of cash donation will not be eligible for deduction.
- The limits of the donation are 10% of the Gross total income.
Deduction on Savings Account Interest (Section 80TTA)
- Section 80TTA allows deduction on earned saving accounts with banks, post offices, cooperative banks, and others.
- The deduction is allowed up to Rs.10,000.
- You will not be eligible for deduction on interest from recurring, fixed deposits, or time deposits.
Interest on Home Loan (Section 80EE)
- Section 80EE allows an additional deduction up to Rs.50,000 in respect to interest on loans for acquired home property from the financial institution.
- The deduction of Rs.2 Lakh is allowed under Section 24 for self-occupied property.
Tax treatment on Joining Bonus and Notice Pay
As per the organisation’s norms and policies, some organisations ask to sign an agreement or bond for a specific period with the new joiner. If an employee leaves the company without any notice period or joining bonus, then the organisation can recover the notice pay or the joining bonus to their employee initially.
There is the tax treatment for joining bonus and notice pay –
In case you received a joining bonus of Rs.1.5 Lakh from your organisation during joining, since you didn’t complete your agreement period. So, in that case, while you leave the organisation, you have to pay back the joining bonus. Let us consider that they ask the new organisation to reimburse the joining bonus, and the new organisation does reimburse. In that case, you need to verify Form-16, which is given by both organisations. If your previous organisation has also included the joining bonus in Form-16, then you can’t obtain a refund of TDS from the Income Tax department. So, in this case, TDS will be a loss that can’t be recovered or adjusted in ITR.
In case you have experience of 1 year 6 months, and you already signed an agreement of 2 years. But, you wanted to quit the job before the compilation of the agreement and join the new organisation. So, in that case, you have to pay the salary of 3 months as a notice period. That you join a new organisation as soon as possible. But, you have a refund on TDS for notice pay as you did not receive the salary from your previous organisation. So, in this case, you need to ensure that your organisation did not include the notice pay in the ‘total salary paid’ under Form-16. Through this, you will get a TDS refund on the notice paid.
This is the end of our discussion on Chapter VI-A deduction for payroll calculation. Let’s know your other questions and opinions on this topic. Mention below the comment box. Also, you can go through our related posts.
Section 80EE and 80EEA: Interest on housing loan deduction