NISM Series SEBI-ICE · Chapter 10: Tax Saving Options

L1 · Foundation

Foundation — Income tax, the tax year and the six deductions

What income tax is and who pays it, the Income Tax Act 1961, previous year and assessment year, and the deductions under Sections 80C, 80CCD(1B), 80D, 80G, 80TTA and 24.

20 min read · Worth 5% of the paper · Written from pages 53–54 of the official NISM workbook · Updated 17 September 2026

Chapter 10 — Tax Saving Options

10.1 What income tax is

Three points worth noticing.

Tax funds expenditure, and the chapter names two examples — infrastructural development, and salaries of state and central government employees.

No tax exists without a law. That principle — "all taxes are levied based on the passing of a law" — is the reason every deduction in this chapter is described by a section number. A benefit that does not sit in a section of the Act does not exist.

The statute is the Income Tax Act, 1961, and it is "as amended by subsequent Finance Acts" — which is why the figures change every year while the section numbers stay put.

10.2 Who pays

Seven categories, and the qualifying words at the end are "that generate income." Learn the list as a set, because a question can ask which of them is not liable.

10.3 The tax year — previous year and assessment year

	Meaning
Previous Year	The year in which income is earned
Assessment Year	The year in which that income is charged to tax

So income earned between 1 April 2023 and 31 March 2024 belongs to the previous year 2023-24, and is assessed in the assessment year 2024-25. The assessment year always follows the previous year — that ordering is the single most-asked fact in this chapter.

10.4 The deductions allowed

Six entries, each identified by its section number.

Section 80C

Seven items, and three of them tie directly to earlier chapters:

Special Bank Deposits of 5 year term — Chapter 4's Special Bank Term Deposit Scheme, with its five-year lock-in and no premature withdrawal or loan allowed.
Contribution to NPS account (Tier 1 account only) — Chapter 7's tier table said exactly this: Tier I investments "are eligible for tax benefits", Tier II "aren't eligible."
National Savings Certificate — Chapter 9's NSC, whose deposits "qualify for tax rebate under Sec. 80C."

And note the last item: it is the PRINCIPAL repayment of a housing loan that falls under 80C. The interest is a different section entirely, dealt with below.

Section 80CCD(1B)

This is the only deduction in the chapter described as sitting on top of another. NPS therefore appears twice — once inside the 80C basket, and again separately under 80CCD(1B).

Section 80D

Four categories of person. Note the word dependent attaches to parents and children.

Chapter 6 explained why this deduction exists in the first place: insurance is "risk management" against "significant potential losses and financial hardship", and the tax system encourages households to buy it.

Section 80G

Section 80TTA

Read the first sentence again: interest on a savings account IS taxable. That is Chapter 4's point restated — "no TDS on interest on SB account balance, BUT TAXABLE IN THE HANDS OF DEPOSITOR." Section 80TTA then gives a deduction, subject to limits, and only to an individual or HUF — not to a company or a firm.

Section 24

The housing loan therefore splits across two sections, and confusing them is the classic error:

	Section
Principal repayment	80C
Interest paid	Section 24

And Section 24 covers three purposes — acquisition, construction and repair — with the date condition after 1 April 1999.

10.5 Filing

And the chapter's own health warning, which is worth quoting in full:

A note on the real world, kept separate from the exam. This booklet was published in November 2020, when the deductions above were the ordinary route for an individual taxpayer. India has since introduced an alternative new tax regime with lower slab rates under which most of these deductions are not available, and it has become the default option that a taxpayer must opt out of. None of that changes the chapter's content — the sections still exist and still apply to anyone using the old regime — and the booklet itself anticipates exactly this by telling you the details are subject to change. For this examination, answer as the chapter states. What is durable is the architecture: a section number for every benefit, a previous year and an assessment year, and a filing date.

Think of it like this

Earn in the previous year, pay in the assessment year

Two names for two different years, and the whole chapter's vocabulary rests on getting them the right way round.

Think of a harvest. The crop is grown in one season and sold in the next.


Income earned 1 April 2023 – 31 March 2024	Previous Year 2023-24
That income assessed and taxed	Assessment Year 2024-25

The word previous is the trap. It does not mean "last year" in the way conversation uses it — it means previous to the assessment, which is exactly why the pair always runs in that order: earn first, assess afterwards.

And note the boundaries of the year itself: "an annual cycle (year) as per the Income Tax law starts on the 1st OF APRIL and ends on the 31st OF MARCH of the next calendar year." Not January to December.

One housing loan, two sections — principal under 80C, interest under 24

A single EMI does two different things, and the Income Tax Act treats them separately.

Part of the EMI	Section	The chapter's words
Principal repayment	80C	"…PRINCIPAL REPAYMENT OF HOUSING LOAN, etc."
Interest paid	Section 24	"INTEREST PAID ON HOUSING LOAN availed for purposes of acquisition of property, construction of property or repair of property"

Confusing the two is the single commonest error in this chapter, and it costs money in real life as well as marks. A borrower who claims the whole EMI under 80C loses the interest deduction entirely — and on a young loan the interest is by far the larger half.

Two further details on Section 24. It covers three purposes — acquisition, construction and repair — so a renovation loan qualifies, not only a purchase. And it carries a date condition: "applicable on housing loans availed AFTER APRIL 1, 1999."

NPS is the only investment that gets counted twice

Almost every tax-saving instrument competes with every other inside one basket. NPS is the exception.

Inside 80C, it sits alongside life insurance, provident fund, ELSS, five-year special bank deposits, NSC and housing loan principal — all sharing the same ceiling. Put more into one and there is less room for another.

Then 80CCD(1B) opens a second door: "IN ADDITION to deduction claimed under Section 80C. Investment in NPS by any individual is available for claiming deduction under Section 80CCD(1B)... Amount available for deduction under this section is OVER AND ABOVE the amount available for claiming deduction under Section 80C."

Over and above. No other entry in the chapter is described that way.

One condition, easily missed and easily tested: 80C names "contribution to NPS account (TIER 1 ACCOUNT ONLY)." That is Chapter 7's tier table restated — Tier I investments "are eligible for tax benefits" while Tier II "aren't eligible." A Tier II account is a flexible savings account with free withdrawal; it is not a tax-saving instrument, and opening one "because it is flexible" earns nothing at all under this chapter.

"The bank deducted nothing" is not the same as "there is no tax"

Section 80TTA opens with a sentence people find surprising:

Chapter 4 had already said it: "No Tax deducted at Source (TDS) on interest on SB account balance, BUT TAXABLE IN THE HANDS OF DEPOSITOR." The bank does not deduct; the income is still yours to declare. Silence at the counter is not permission.

What 80TTA then provides is a deduction, not an exemption — "tax charged on interest earned on savings bank account is eligible to be claimed as a deduction under section 80TTA, SUBJECT TO LIMITS on the amount claimed as deduction and other conditions specified from time to time."

And it has two boundaries worth memorising:

"Available ONLY TO INDIVIDUAL OR HUF." Not to a company, not to a firm.
"Applicable for SAVINGS BANK ACCOUNT, POST OFFICE OR COOPERATIVE BANKS." Three places, which is wider than most people assume.

Compare a fixed deposit, where Chapter 4 said interest "is subject to TDS beyond a stipulated amount" — there the bank does deduct, and depositors then wrongly assume the matter is closed. In both cases the same principle holds: TDS is a collection mechanism, never a settlement of your liability.

Every benefit lives in a section — and every section can be amended

The chapter states a constitutional principle in one clause: "ALL TAXES ARE LEVIED BASED ON THE PASSING OF A LAW."

Which is why this chapter is organised by section number rather than by product:

Section	What it covers
80C	Life insurance, provident fund, ELSS, 5-year special bank deposits, NPS Tier I, NSC, housing loan principal
80CCD(1B)	NPS, over and above 80C
80D	Medical insurance — self, spouse, dependent parents, dependent children
80G	Donations — National Children Foundation, universities or educational institutions of national importance, Prime Minister's Relief Fund, charitable institutions
80TTA	Savings account interest, individual or HUF only, bank/post office/cooperative bank
24	Housing loan interest — acquisition, construction or repair, loans after 1 April 1999

A benefit somebody describes without a section behind it does not exist.

And the corollary, which the chapter itself supplies: the governing statute is the Income Tax Act, 1961 "as amended by subsequent FINANCE ACTS", so the amounts change even while the section numbers stay. The booklet's own closing advice is the right habit — "readers are advised to REGULARLY CHECK LATEST PROVISIONS AND GUIDELINES ISSUED BY GOVERNMENT FROM TIME TO TIME." India has since introduced an alternative regime with lower rates and without most of these deductions; the architecture in this chapter is unchanged, and for the examination you answer as the chapter states.

Key terms in this chapter

Artificial juridical person: A category of taxpayer recognised by the Income Tax Act alongside individuals, HUFs, associations of persons, bodies of individuals, firms, companies and local authorities.
Assessment Year: The year in which income is charged to tax. It always follows the previous year.
ELSS: Equity Linked Savings Scheme — the mutual fund category named in Section 80C as qualifying for deduction.
Filing date for an individual: The last date to file an income tax return for an individual, stated in the booklet as 31 July — a date the chapter itself notes is subject to change.
Finance Act: The annual legislation that amends the Income Tax Act, which is why rates and limits change while section numbers remain the same.
Hindu Undivided Family (HUF): One of the categories of person liable to income tax, alongside individuals, Associations of Persons, Bodies of Individuals, corporate firms, companies, local authorities and other artificial juridical persons that generate income.
Income tax: The percentage of income paid to the government so that it can fund expenses such as infrastructural development and the salaries of state and central government employees.
Income Tax Act, 1961: The law governing the provisions for income tax in India, as amended by subsequent Finance Acts. All taxes are levied only on the passing of a law.
Previous Year: The year in which income is earned, running from 1 April to 31 March.
Principal repayment of housing loan: The part of a housing loan instalment that reduces the loan, deductible under Section 80C — as distinct from the interest, which falls under Section 24.
Section 24: The deduction for interest paid on a housing loan availed for acquisition, construction or repair of property, applicable to housing loans availed after 1 April 1999.
Section 80C: The deduction for money invested in life insurance, provident fund, ELSS schemes of mutual funds, Special Bank Deposits of five year term, contribution to an NPS Tier 1 account only, National Savings Certificate and the principal repayment of a housing loan.
Section 80CCD(1B): A deduction for investment in NPS by any individual, available in addition to and over and above the amount deductible under Section 80C. It is the only stacking deduction in the chapter.
Section 80D: The deduction for medical insurance availed for self, spouse, dependent parents and dependent children.
Section 80G: The deduction for donations to bodies such as the National Children Foundation, universities or educational institutions of national importance, the Prime Minister's Relief Fund and charitable institutions.
Section 80TTA: The deduction available on interest earned on a savings account — which is itself taxable — subject to limits and other conditions. It is available only to an individual or HUF, and applies to a savings bank account, post office or cooperative bank.
Taxable versus TDS: Two different things: TDS is tax deducted by the payer before paying you, while taxability is whether the income belongs in your return. Savings account interest attracts no TDS but is taxable; fixed deposit interest attracts TDS beyond a stipulated amount and is also taxable.

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Original explanatory writing based on the official NISM workbook for Series SEBI-ICE, which is published and copyrighted by NISM. Check figures against the current edition at nism.ac.in.

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