Deductions

A deduction is an expense that is subtracted from an individual’s gross total income to reduce the amount which is going to be taxed. Deduction can be less, more than or equal to the amount of income. If the amount deductible is more than the amount of income, then the resulting amount will be taken as a loss while calculating taxes.¹

Some of the deductions for individuals are:

Contribution to LIC and Other Pension Fund 

Individuals can claim all contributions up to Rs. 1,50,000 of a payment under LIC’s annuity plan, or to any other insurer for receiving pension.² This does not include any interest or bonuses that are in the individual’s account.³ If a deduction is claimed for this, later on when the pension is received by the individual or someone that he appoints (nominee), the pension will be taxable.

Income received under a pension scheme which is taxable includes both contributions made to receive pension and contributions to all approved insurers under the Insurance Regulatory and Development Authority. You can find a list of approved insurers here.

This also includes contributions in Equity Linked Savings Scheme (ELSS) which is a mutual fund equity scheme that offers long-term wealth creation along with tax benefits.⁴ ELSS also has a mandatory lock-in period of three years. Investments in ELSS up to a maximum of Rs. 1.5 lakh per annum qualify for deductions. This means that you can deduct the amount you invest in an ELSS from your total income to reduce your taxable income and, therefore, your taxes.

Note: This deduction is available only under the old tax regime and cannot be claimed under the new tax regime under Section 202.

Contribution to National Pension System

National Pension System³ is a retirement benefit scheme which is compulsory for all Central Government workers who were employed on or after January 1, 2004. Other employees and self-employed persons also have the option of being a member of NPS.⁵

Deduction for Employer (Old Regime): All employer’s contributions to NPS is taxable as salary income. The employer’s contribution to the NPS is deductible by the employee in the year in which contribution is made. The maximum deduction is 10% of the salary amount of the employee. Where the employer making the deduction is the Central or State Government, the maximum deduction is 14% of the salary amount. 

Deduction for Employer (New Regime): All employer contributions to the National Pension System are not taxable as salary income for the employee. Under the new tax regime, the contribution made by the employer to the NPS account of the employee is deductible from the employee’s taxable income in the year in which the contribution is made. The maximum deduction allowed is up to 14% of the employee’s basic salary plus Dearness Allowance and subject to an overall ceiling of Rs. 7.5 lakh per financial year for employer contributions to provident and pension funds combined. This limit applies equally to employees in both the private and government sectors.

Deduction for Employee: The NPS contribution made by an employee is deductible in the year the contribution is made. Here, the deduction amount is 10% of the salary of the employee. If the contribution is made by another person who is not an employee, then the deduction limit is 20% of the gross total income.⁶

Note: These deductions are available only under the old tax regime and cannot be claimed under the new tax regime under Section 202.

Pension or other payments out of the NPS account will be taxable for the person who receives it. However, if the amount of pension received by NPS  is used to purchase an LIC annuity plan in the previous year, then it will be exempt from tax.

Maintenance, including Medical Treatment of a person with a disability 

An individual as well as a member of a Hindu Undivided Family can claim deduction for expenditure related to:

• Medical treatment including nursing, training and rehabilitation of a person with a disability.⁷
• Deposits made under an approved LIC scheme or other insurers.

Depending on the disability faced by the individual or a dependent relative like a member of a family including spouse, children, siblings, parents etc, deductions can be claimed. 

• Deductions  for persons with disabilities, who is a person suffering 40% or more of blindness, low vision, hearing impairment, locomotor disability, mental retardation, mental illnesses and cured of leprosy – can get a fixed deduction of Rs. 75000. 
• A higher deduction is available for persons with severe disabilities (80% and higher) for an amount of Rs. 1,25,000. To claim such deductions the individual must have certification issues by the medical authority. The assessing officer may even ask you to get a fresh reassessment to obtain a fresh medical certificate.

Note: This deduction is available only under the old tax regime and cannot be claimed under the new tax regime under Section 202.

Medical Treatment

A resident individual or a resident Hindu Undivided Family can claim deductions for medical treatment if he or she has:

• Incurred expenditure for the medical treatment of a specified disease or ailment as prescribed by the board
• Incurred medical treatment for himself or for his dependants like husband,wife, children, parents, siblings, etc.
• A prescription for such medical treatment from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist, etc.⁸

Either Rs. 1,00,000 for senior and super senior citizens or Rs. 40,000 for any other person will be considered to be the deduction (whichever expenditure on medical treatment is lower). The amount deducted will also be reduced if an individual gets insurance money or is reimbursed by the employer for medical treatment.

Note: This deduction is available only under the old tax regime and cannot be claimed under the new tax regime under Section 202.

Payment of Interest on Loan Taken for Higher Studies

An individual can claim deduction for the payment of interest on a loan taken for high studies⁹ for themselves or their relatives like spouse, children etc. If the loan is taken for higher studies is from a bank, financial institution or an approved charity, the interest is deductible in the year the interest is paid. The entire interest is deductible on the year the individual pays interest on the loan, as well as seven years¹⁰ after the interest is paid up.

Note: This deduction is available only under the old tax regime and cannot be claimed under the new tax regime under Section 202.

Payment of Interest on Loan for buying House Property

To claim a deduction for interest on loan taken for residential house properties, a taxpayer can be a resident or non-resident of India. Further, the following conditions are also to be met:¹¹

• He or she has to take a loan
• The loan should be for a residential house property
• The loan is taken from a bank or a housing finance company A housing finance company means a public company formed or registered in India with the main objective of carrying on a business for providing long-term construction or purchase or residential houses in India
• Loan is sanctioned by the bank or housing finance company during April 1 2016 to March 31, 2017
• The amount of the loan sanctioned does not exceed Rs. 35 lakhs.
• The value of the house property does not exceed Rs 50 Lakhs
• The person claiming deduction should not own any residential house property on the day the loan is sanctioned.

If the above conditions are satisfied, the taxpayer can claim deduction under Section 130 under the limitation that no new loans beyond March 31, 2017, (( Section 130(2)(a), Income-tax Act, 2025. )) can claim this deduction.

Note: This deduction is available only under the old tax regime and cannot be claimed under the new tax regime under Section 202.

Donation to certain funds, trusts and charitable institutions

Deduction is available to a taxpayer if he contributes or gives donations to approved funds and charitable institutions/donations ,¹² etc., can claim such deductions. 100% deduction is available for donations to National Defence Fund, Prime Minister’s National Relief Fund, Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND) Prime Minister’s Armenia Earthquake Relief Fund, Africa (Public Contributions – India) Fund, National Children’s Fund, etc.

Note: This deduction is available only under the old tax regime and cannot be claimed under the new tax regime under Section 202.

Rent Paid

An individual can claim deductions for the rent paid¹³ for a residential accommodation by him or for his family. This person can be anyone including a self-employed person or a person who does not get house rent allowance from the employer. However, it should not exceed Rs. 5000 a month or 25% of the person’s income. Only an individual who pays rent for a residential accommodation for himself or his family can avail this deduction through Form No.10BA.

Note: This deduction is available only under the old tax regime and cannot be claimed under the new tax regime under Section 202.

Donations for scientific research and rural development

Any individual, except someone gaining profits out of a business or profession, can claim deductions for donations made towards scientific research or rural development.¹⁴ Such donations must be given to research associations, universities or other institutions which work in this area.

The points given above are some examples of major deductions applicable to individuals. Read here for more.

Note: This deduction is available only under the old tax regime and cannot be claimed under the new tax regime under Section 202.

1. Chapter VIII, Income-tax Act, 2025. [↩]
2. Section 123, Income-tax Act, 2025. [↩]
3. Section 123 r/w Schedule XV, Income-tax Act, 2025. [↩] [↩]
4. Section 123 r/w Schedule XV, Income-tax Act, 2025. [↩]
5. Section 124, Income-tax Act, 2025. [↩]
6. Section 124(3), Income-tax Act, 2025. [↩]
7. Section 127, Income-tax Act, 2025. [↩]
8. Section 128, Income-tax Act, 2025. [↩]
9. Section 129, Income-tax Act, 2025. [↩]
10. Section 129(2), Income-tax Act, 2025. [↩]
11. Section 130, Income-tax Act, 2025. [↩]
12. Section 133, Income-tax Act, 2025 [↩]
13. Section 134, Income-tax Act, 2025. [↩]
14. Section 135, Income-tax Act, 2025. [↩]