Section 80D Deductions: Income Tax Calculation

Deductions under 80D

Every individual needs to pay tax without any doubt. If we try to evade it then we will be punished as it is against the law, but what we can do is reduce tax liability. How can an assessee reduce his tax liability? Answer to this question is deductions. Government of India has provided certain investment avenues through which we can reduce tax liability and 80D is one of them.

What is Section 80D?

Section 80D is one of the sections which come in the income tax act of 1961. This refers to deduction which an assessee can claim to reduce his tax liability. Like 80D there are other deductions such as Section 80C, 80DD, 80E, 80G,80GGB etc. some of these are in connection with individual assessees (80C, 80D), some with Hindu Undivided Family (80C,80D), some applicable only to companies (80GGB) and some to all irrespective of whether assessee is an individual or HUF or company (80G).

Claiming deduction to reduce tax liability is neither very easy nor is difficult. All you need to do is go according to the rules and regulations prescribed. For example you can claim 100 % or 50% deductions on donation made provided the trust or the fund or institution is recognized by government of India, if the fund is not in the list or in unrecognized then all the donations that an assessee has made cannot be taken as deduction. Hence it is very important for an assessee to ensure that he follows every rules and regulations. Most of the deductions have certain Do’s and Don’ts.

Section 80D Income Tax Act

Assessees’ who are paying the tax as individuals and those who are paying under the head Hindu Undivided Family (HUF) can claim this deduction. Companies be it domestic, Indian or foreign cannot avail this deduction.

Section 80D: Income Tax Calculation

Amount deductible under this section is 15,000 in case of assessees below age of 65 (to keep in effect the insurance of assessee or his spouse or children) and 20,000 in case of senior citizens. Previously insurance amount paid on behalf of parents was not given as deduction, but since financial year 2008- 2009 even if the parents are independent premium paid can be claimed as deduction. Hence the total amount of deduction an assessee can claim under this category is 30,000.

In case of HUF (Hindu Undivided Family) if an assessee can claim insurance premium paid by him on behalf of family members.

This insurance premium paid cannot be claimed if an assessee has paid it by cash. It has been clearly stated in the income tax act that assessee needs to pay the insurance premium through any other means except by cash. Hence payment through cheque is of the most popular methods followed by assessees’.

After reading the above paragraphs don’t jump to a conclusion that you will be able to deduct 15,000 or 30,000 from your taxable income because all that’s said above is just the half part. The other half part is that the actual amount as insurance premium paid or 15,000 whichever is lower is deductible. For example an assessee who has paid 3,000 rupees as his insurance premium, 2500 rupees to keep in effect his wife’s insurance and 2000 each in case of his two children out of his annual income of 2,25,000 rupees the deduction given to him will be

Total amount of insurance paid = 3000+2500+2000+2000 = Rs 9500

Taxable salary = 2,25,000 – 9500 = Rs 2,15,500

And not Rs. 2,10,000 (2,25,000-15,000)

It also holds good when its reverse, which is insurance premium, is more than 15,000 then the deduction will be taken as 15,000 and not the total amount of insurance premium paid. For example an assessee Mr. Z has annual income of 2,00,000 rupees and has paid 6000 rupees as his insurance premium, 5000 as his wife’s premium and 4,000 for his elder son’s premium and 3000 for his younger daughter’s insurance premium.

Total premium paid by him is = 6000+ 5000+ 4000+ 3000 = Rs 17,000

In this his taxable income will be Rs 1,85,000 (2,00,000-15,000) and not Rs 1,83,000 (2,00,000-17,000)

Section 80D Insurance

This is useful for assessees who are not insured by their employers. Some companies insure their employees and some do not believe in that so depending on that an assessee can make judgment. If your employer has already taken care of your insurance then make sure that you have insured your wife and children.

Being an assessee from HUF can I claim this deduction?

My answer to all the assessees’ who have this question is absolutely yes. Not only the premium paid to keep in effect your or your spouse’s or children’s health insurance, but also the premium paid on your relatives in your undivided family. Provided it is within the upper limit (15,000 for individuals below 65 years and 20,000 in case of senior citizens).

Points to be taken care of

All the discussion made above can be summarized as

Example 1
Mr. Ramesh is an employee in a private firm. His annual income is 2,75,000 rupees. The amount of insurance premium paid by him is 2,000 for his insurance, 3000 for his wife’s insurance, 1000 for his new born son. Calculate the taxable income. Solution: in this case they have given the annual income, so this will be the total income and from this deductions are made to find the taxable income.

Total amount of insurance premium paid by Ramesh = 2000+3000+1000= Rs 6000
Total Income = 2,75,000

(-) deduction = 6,000

Taxable income = 2,69,000

Example 2
Mr. X who works in an IT company has annual salary of 3,65,000 rupees. Out of which he has paid a total of 20,000 rupees as insurance premium on behalf of his wife, son, himself and his parents. He has also paid around 15,000 rupees as pension fund and has donated 4000 rupees to fund having 100% deduction. Calculate the taxable income and then the income tax that he is liable to pay.

Solution :
Total income = 3,65,000

(-) Deductions
Insurance premium (US 80D) = 20,000
Pension Fund (US 80C) = 15,000
Donation (US 80G) = 4,000
Taxable Income = 3,26,000

Tax liability is calculated considering Assessment year as 2009-10. Previous year is 2008-09

Tax liability = 15000 + 20% of 26000
= 15000 + 5200
= Rs 20,200

If X were a woman then,
Tax liability = 12000 + 20% of 26000
= 12000 + 5200
= Rs 17,200

If X were a senior citizen then,
Tax liability = 7500 + 20% of 26000
= 7500 + 5200
= Rs 12,700

Example 3
Mr. Suresh lives in HUF. His annual salary is 3,50,000. He has paid premium of 4000 for his insurance, 2000 on behalf of his uncle, and donated 5000 to a fund giving 50% deduction. Calculate his tax liability.

Solution :
Total insurance premium paid = 4000+2000= Rs 6000
Total income = 3,50,000

(-) Deductions
Insurance premium (US 80D) = 6,000
Donation (US 80G) = 2,500
Taxable Income = 3,41,500

Tax liability = 15000 + 20% of 41500
= 15000 + 8300
= Rs 25,300

Example 4
Mr. Guru has annual salary of 340000, income from house property 30000, income from capital gains 10000 and income from other sources is 15000 rupees. He has paid an insurance amount of 25,000 rupees for himself, his wife, children & parents insurance. He has donated 5000 to fund giving 100% deduction, 10000 to pension fund. Calculate his tax liability.

Solution :
Calculation of total income
Income from salary = 3,40,000
Income from house property = 30,000
Income from capital gains = 10,000

Income from other sources = 15,000

Total income = 3,95,000

(-) deductions
Insurance premium (US 80D) = 25,000
Donation (US 80G) = 5,000

Pension Fund (US 80C) = 10,000
Taxable income = 3,55,000

Tax liability = 15000 + 20% of 55000
= 15000 + 11000
= Rs 26,000

Health insurance is a must for you even if there were no tax benefits. Section 80 D provides you this tax benefit. This also serves as an incentive for you to take a health insurance policy for your parents who are senior citizens.