FY 2083/84 status: This guide explains proposed rules from the Economic Bill 2083 together with existing Inland Revenue Department guidance. Review and update this article after the authenticated Economic Act 2083 and updated IRD guidance are published.
Salary-tax deductions can reduce taxable income, but not every payment is treated in the same way. Some items reduce taxable income before the tax slabs are applied. Other items are tax credits applied after tax is calculated.
This guide explains the major deductions and credits relevant to an individual salary-tax calculator.
Summary of Deductions and Credits
| Item | Existing IRD Guidance or FY 2083/84 Proposal | Treatment |
|---|---|---|
| Life or investment insurance premium | Lower of actual premium or Rs. 40,000 | Deduction from taxable income under existing IRD guidance |
| Health or medical insurance premium | Lower of actual premium or Rs. 20,000 | Deduction from taxable income under existing IRD guidance |
| Private building-insurance premium | Existing IRD FAQ: lower of actual premium or Rs. 5,000. Economic Bill 2083 proposes Rs. 10,000. | Deduction from taxable income |
| Medical-treatment expense | Up to Rs. 750 per year and not more than 15% of eligible treatment expense | Tax credit under existing IRD guidance |
| Remote-area adjustment | Existing guidance ranges from Rs. 10,000 to Rs. 50,000 depending on area category | Deduction from taxable income |
| Child-education tuition fee | Economic Bill 2083 proposes the lower of 25% of eligible annual tuition payment or Rs. 25,000 | Proposed deduction from taxable income |
Life or Investment Insurance Deduction
Existing IRD guidance states that a resident natural person with qualifying investment insurance may deduct the lower of:
- The eligible annual premium paid; or
- Rs. 40,000.
Example
If the eligible annual premium is Rs. 55,000, the deduction is capped at Rs. 40,000.
Health or Medical Insurance Deduction
Existing IRD guidance states that a resident natural person with qualifying health insurance from a resident insurance company may deduct the lower of:
- The eligible annual premium paid; or
- Rs. 20,000.
Private Building-Insurance Deduction
Existing IRD FAQ guidance refers to a private building-insurance deduction capped at the lower of the annual premium or Rs. 5,000.
The Economic Bill 2083 proposes replacing the Rs. 5,000 amount with Rs. 10,000. Treat Rs. 10,000 as a proposed FY 2083/84 figure until the authenticated Economic Act and updated guidance are confirmed.
Proposed Child-Education Tuition Deduction
The Economic Bill 2083 proposes a new deduction for a resident natural person paying tuition fees for a child. The proposed deductible amount is the lower of:
- 25% of the eligible annual tuition-fee payment; or
- Rs. 25,000.
Example
If eligible annual tuition payments total Rs. 80,000, 25% is Rs. 20,000. The proposed deduction is therefore Rs. 20,000.
If eligible annual tuition payments total Rs. 1,40,000, 25% is Rs. 35,000. The proposed deduction is capped at Rs. 25,000.
Medical-Treatment Tax Credit
Medical-treatment relief should not be confused with health-insurance premium deduction.
Existing IRD guidance describes a tax credit of up to Rs. 750 per year and not more than 15% of eligible medical-treatment expenses. Subject to the applicable conditions, eligible spouse-related treatment expenses may also be relevant.
Remote-Area Deduction
Existing IRD guidance states that a natural person working or conducting business in an eligible remote area may receive a deduction according to the applicable geographical category.
| Remote-Area Category | Existing Guidance |
|---|---|
| Category A | Rs. 50,000 |
| Category B | Rs. 40,000 |
| Category C | Rs. 30,000 |
| Category D | Rs. 20,000 |
| Category E | Rs. 10,000 |
Check the detailed location classification before applying a remote-area deduction.
Frequently Asked Questions
Can I deduct both life insurance and medical insurance?
They are separate categories under existing IRD guidance, subject to their own conditions and limits.
Is the medical-treatment credit the same as medical-insurance deduction?
No. One is a tax credit related to eligible treatment expenses and the other is a deduction related to qualifying insurance premium.
Is the Rs. 25,000 child-education deduction already final?
It is proposed in the Economic Bill 2083. Confirm the final Economic Act before relying on it.
Official Sources
Disclaimer: This article provides general educational information and does not constitute legal, accounting or tax advice. FY 2083/84 figures described as proposed are based on the Economic Bill 2083. Verify the authenticated Economic Act 2083 and updated Inland Revenue Department guidance before filing a return, completing a final payroll adjustment or relying on a calculation.
