Under the Income Tax Act, 1961, individuals earning income from salary or house property are eligible to claim various deductions that help reduce their taxable income. These deductions are designed to account for necessary expenses and promote savings and investments. Understanding these benefits not only helps in effective tax planning but also ensures that individuals do not overpay taxes unnecessarily.
In this SEO-friendly, humanized 1000-word essay, we will explain the deductions available under the heads “Income from Salary” and “Income from House Property”, supported by relevant legal provisions. We’ll also conclude with a helpful mnemonic to remember the key deductions easily.
Part 1: Deductions under the Head “Income from Salary”
Section 17 of the Income Tax Act defines salary income to include basic salary, allowances, perquisites, bonuses, and pensions. The taxable salary is calculated after allowing standard and specific deductions, which are:
1. Standard Deduction [Section 16(ia)]
Introduced in the Finance Act, 2018, the standard deduction is available to all salaried individuals and pensioners.
- Amount: ₹50,000 (fixed)
- This replaces transport and medical reimbursement deductions
Example:
If your gross salary is ₹8,00,000, your income after standard deduction will be ₹7,50,000.
2. Entertainment Allowance [Section 16(ii)]
Only available to government employees.
- Maximum deduction: Lower of
- ₹5,000
- 20% of basic salary
- Actual entertainment allowance received
Note: Private sector employees are not eligible for this deduction.
3. Professional Tax [Section 16(iii)]
This is the tax paid to the state government by an employee or deducted by the employer.
- Maximum deduction: Actual amount paid, subject to state laws (e.g., ₹2,500 in Maharashtra)
4. House Rent Allowance (HRA) [Section 10(13A)]
Exempt under Section 10(13A) read with Rule 2A, if you live in a rented house.
- Exemption is least of the following:
- Actual HRA received
- Rent paid – 10% of salary
- 50% of salary (metro cities) / 40% (non-metros)
Note: If you live in your own house, no HRA exemption is allowed.
5. Leave Travel Allowance (LTA) [Section 10(5)]
Exemption for travel within India on leave with family.
- Allowed twice in a block of four years
- Covers actual travel expenses, not food or stay
6. Deductions under Chapter VI-A (Applicable from Gross Total Income)
These are not specific to salary but reduce total taxable income:
- Section 80C: Investments in LIC, PPF, ELSS (up to ₹1.5 lakh)
- Section 80D: Health insurance premium
- Section 80E: Interest on education loan
- Section 80TTA: Savings account interest (₹10,000 max)
Part 2: Deductions under the Head “Income from House Property”
Section 22 to Section 27 of the Income Tax Act deals with taxation of income from house property. Only net annual value of the property is taxed, after allowing these deductions:
1. Standard Deduction [Section 24(a)]
- Flat deduction of 30% of the Net Annual Value (NAV) of the property
- Allowed irrespective of actual maintenance expenses
Example:
If NAV = ₹2,00,000 → Deduction = ₹60,000
2. Interest on Home Loan [Section 24(b)]
Interest on borrowed capital for construction, purchase, or repair is deductible.
- Self-occupied property:
- Up to ₹2,00,000 per annum (if construction completed within 5 years)
- Let-out property:
- Entire interest is deductible without limit
Note: Pre-construction interest is also allowed, spread over 5 years (1/5th per year).
3. Municipal Taxes Paid
Municipal or property taxes actually paid by the owner during the year are allowed as deduction from Gross Annual Value (GAV) to compute Net Annual Value.
4. Deduction for Co-Owners
If the house is co-owned, each co-owner can claim a separate deduction on:
- Standard deduction (30%)
- Interest on loan up to ₹2 lakh (self-occupied)
Provided they both contribute to loan repayment.
Summary Table – Deductions under Salary and House Property
| Head of Income | Deduction | Section | Limit / Conditions |
|---|---|---|---|
| Income from Salary | Standard Deduction | 16(ia) | ₹50,000 |
| Entertainment Allowance (Govt only) | 16(ii) | ₹5,000 or 20% or actual (least) | |
| Professional Tax | 16(iii) | Actual paid (e.g., ₹2,500 max in some states) | |
| HRA | 10(13A) | Based on rent paid, salary, location | |
| LTA | 10(5) | Twice in 4 years, actual travel fare | |
| Chapter VI-A deductions | 80C to 80TTA | Varies by section | |
| Income from House Property | Standard Deduction | 24(a) | 30% of Net Annual Value |
| Interest on Housing Loan | 24(b) | ₹2 lakh (self-occupied), unlimited (let-out) | |
| Municipal Taxes Paid | Section 23 | Actual paid during the year |
Mnemonic to Remember – “SHE LIP 24”
To remember key deductions under Salary (SHE) and House Property (LIP + 24), use:
SHE – Deductions under Salary
- S – Standard deduction
- H – House Rent Allowance
- E – Entertainment and Employment Taxes (Professional Tax)
LIP 24 – Deductions under House Property
- L – Loan Interest (Section 24b)
- I – Interest Pre-construction (spread over 5 years)
- P – Property/Municipal Tax
- 24 – 30% Standard Deduction under Section 24(a)
