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What are Personal Tax Exemptions?

Personal tax exemptions refer to income tax exemptions other than exemptions on mediclaim premiums, donations, interest on higher education loan, etc.

Personal tax exemptions in detail

Principal on Housing Loan: If you take a housing loan, your monthly repayment includes both interest and principal. For any principal repayments made towards a housing loan, you get a tax exemption of up to ₹150,000.

Example 1: You take a housing loan and every year you pay ₹300,000 towards the loan (or a monthly instalment of nearly ₹25,000). Out of this ₹300,000, let's say ₹75,000 is principal, and the rest is interest. So, you can deduct ₹75,000 from your taxable income.

This tax benefit is part of section 80C, which also includes PPF, equity-linked saving schemes, National Savings Certificates, etc.

Note this deduction is available only on principal repayments for a completed property, and not for an under-construction property. Also, if you sell a property taken on loan within 5 years, all the benefit received towards principal repayment will be considered as taxable income.

Housing rent paid: If you live in a rented house, you can get a tax benefit on the rent paid.

For individuals, whose salary includes a Housing Rent Allowance (HRA) component, the exemption is the lowest of the following amounts:

  • Actual HRA received
  • Rent paid less 10% of basic salary
  • 50% of basic salary for individuals residing in a metro city or 40% of basic salary for those residing in a non-metro city

Example 2: Let's say your basic salary is ₹25,000 and HRA is ₹10,000 per month. You live in a metro city, say Delhi, and pay a monthly rental of ₹8,000. In this scenario, of all the three, the lowest amount is ₹5,500 - calculated as rent paid (₹8,000) less 10% of basic salary (₹2,500). So you can deduct ₹66,000 (₹5,500 x 12) from your taxable income.

For those who don't have any HRA component in their salaries, they can claim a deduction of the lowest of the following amounts:

  • Actual rent less 10% of taxable income
  • 25% of taxable income
  • ₹2,000 every month

Example 3: Let's say your taxable income is ₹30,000, and you pay a rent of ₹6,000 every month. You can claim a deduction of ₹2,000 as this is the lowest amount among the three.

Royalty and patents: If you earn royalty income on any patents and books, you get a tax exemption of ₹300,000 per year. For books, any author/joint author of a literary or scientific book can claim the deduction. However, the books cannot be text books, magazines, newspapers, pamphlets, etc.

Use our tax calculator to check the impact of personal tax exemptions on your tax payable.

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