08/08/2020
Beyond Section 80C: 10 ways to Save Taxes
Indian income tax rules provide a lot of opportunities to reduce your taxable income. However, most taxpayers know and take advantage of ₹ 1.5 lakh deduction available under Section 80C.
However, by knowing about many other tax-saving opportunities that exist, every taxpayer can further reduce the taxes they pay. In this article, we are listing 10 ways beyond the Section 80C route by which taxpayers could save on income tax.
1) Tax saving with NPS under Section 80CCD (1B): Taxpayers can save additional tax by investing up to ₹ 50,000 in NPS. This is over and above the benefit, they can claim on contributions under Section 80c. They also have the option of utilizing NPS for the ₹ 1.5 lakh limit of Section 80c. This combination will take total deduction one can claim with NPS to ₹ 2 lakh.
2) Tax savings on Health insurance premiums under Section 80D: To encourage self-financed health insurance, there is a tax incentive. Section 80D allows for tax deductions from the total taxable income towards the payment of health insurance premiums as well as expenses incurred towards healthcare. Do check the policy document to ascertain if premiums paid for it qualify for tax deduction under Section 80D.
The limits to claim tax deduction under Section 80D depends on who all are included under the health insurance cover and their age. Hence, depending on the taxpayer’s family situation, the limit could be ₹ 25,000, ₹ 50,000, ₹ 75,000, or ₹ 1 lakh.
3) Tax savings on repayment of an Education loan under Section 80E: Borrowing to realize higher education dreams is common these days. Students who have availed an education loan to pursue their education are provided a tax benefit on the repayment of the interest component of the loan under Section 80E. This tax benefit can be claimed by either the parent or the child (student), depending on who repays the education loan to start claiming this deduction.
This tax deduction is also available only on taking an education loan from institutions and not from family members or friends and relatives. Taxpayers can claim the deduction from the year they start repaying the interest on the education loan and in the seven immediately succeeding financial years or until the interest is paid in full, whichever is earlier. There is no limit to the deduction claimed on the interest repayment.
4) Tax savings on Interest component of Home loan under Section 24: Homeowners with a home loan can claim tax deduction under Section 24 of the income tax on the interest component of their home loan. The maximum tax deduction that a taxpayer can get here on interest payment of home loan taken for a self-occupied property is ₹ 2 lakhs.
In case the property for which the home loan has been taken is not self-occupied and is rented or deemed to be rented, no maximum limit for tax deduction has been prescribed, and as a taxpayer, you can take a deduction on the whole interest amount under Section 24.
But in cases where the borrower (homeowner) isn’t able to occupy the property due to employment, business or profession carried on at any other place, forcing them to reside at any other place; the amount of tax deduction available under Section 24 is limited to ₹ 2 lakhs.
5) Tax savings on interest repayment on Home loan for first-time owners under Section 80EE: First-time homeowners (you should not own any other house property on the date of the sanction of a loan from a financial institution) can claim tax deduction under Section 80EE up to ₹ 50,000. This sum is over and above the ₹ 2 lakh limit under Section 24 of the income tax act towards repayment of home loan interest.
The eligibility to avail this deduction includes the value of the house to be less than ₹ 50 lakh, and the loan is for ₹ 35 lakh or less. This section was first introduced in 2013-14 when it was available for only two financial years. Since 2016-17, this section has been reintroduced, and the tax benefit applicable till the loan is repaid, with the ₹ 50,000 annual cap.
6) Tax savings on rent paid in cases where HRA isn’t paid under Section 80GG: If you are salaried but do not receive HRA because you work in the informal sector or because you are self-employed, you can claim deduction towards rent paid under Section 80GG up to ₹ 60,000 in a financial year. This deduction is not available to taxpayers who own a house but live in a rented house in the same city. It cannot be availed by taxpayers who own a house in another city and claim tax deduction under Section 24 towards repayment of home loan interest on that house.
The deduction under this section is allowed on the lowest of the three conditions, which will be ₹ 60,000:
a) At least 25% of the total income, excluding any capital gains. This will be ₹ 1.5 lakh on an annual income of ₹ 6 lakh.
b) Actual rent minus 10% of income. This would be ₹ 84,000 if you were paying ₹ 12,000 monthly rent (₹ 1.44 lakh – ₹ 60,000)
c) Or ₹ 60,000
7) Tax savings on interest earned from savings bank account under Section 80TTA: All individual taxpayers and HUF can claim a tax deduction on the interest earned from such savings under Section 80TTA within limits. This is for all ordinary taxpayers who are not senior citizens. Section 80TTB is applicable in the case of senior citizen taxpayers. The interest earned could be from; savings accounts in bank or banking companies, savings accounts in post offices, or savings accounts in co-operative societies involved in the banking business.
The maximum deduction limit is ₹ 10,000 under this section, which includes all the total of all the interest income earned from all the savings account that one may have. Any interest earned over and above ₹ 10,000 is considered “Income from Other Sources” and, therefore, taxable. So, if the interest income from three savings bank account adds to ₹ 12,000, the deduction can be claimed up to ₹ 10,000 with the balance being added under the head income from other sources.
To provide senior citizens the benefit of lower tax implication on interest income, Section 80TTB was introduced from April 1, 2018, to benefit senior citizens who tend to utilized interest from savings banks as well as deposits as a component of their income in their old age. Under Section 80TTB deduction up to ₹ 50,000 or an amount from a specified income is allowed from the total gross income.
8) Tax savings on medical expenses towards disabled dependent under Section 80DD: If, as a taxpayer, you are looking after disabled dependents, you could claim a tax deduction on expenses under Section 80DD. This deduction is offered to help you take care of your disabled family member who is dependent on you.
Section 80DD defines disabled dependents as spouse, child, parents, or siblings (brother/sister). In the case of HUF, a disabled dependent can be any member of the HUF. To claim deductions under this section, the disabled dependent should not have claimed deductions under Section 80U (which is in the case where the taxpayer is disabled). The disabilities that are covered under this policy include blindness, low vision, locomotor disability, hearing impairment, mental retardation, mental illness, autism, and cerebral palsy.
Medical expenses against which deductions can be claimed include:
Any expenditure made towards medical treatment, nursing, training, rehabilitation of a dependent person with a disability.
Any amount paid as premium for a specific insurance policy designed for such cases as long as the policy satisfies the conditions mentioned in the law.
How much can be deducted?
The deduction allowed varies depending on whether the dependent person has a disability or severe disability.
A taxpayer can claim a tax deduction up to ₹ 75,000 in a financial year if the dependent person has at least 40% of any of the specified disability.
A taxpayer can claim a tax deduction up to ₹ 1.25 lakh in a financial year if the dependent person has at least 80% of any of the specified disability, which is considered to be a severe disability.
Suppose a taxpayer has an autistic child on whom he is spending ₹ 35,000 as medical expenses; the deduction will be ₹ 75,000 irrespective of the actual expenses if the autistic child is certified as disabled and ₹ 1.25 lakh if the child is certified as severely disabled.
Taxpayers need to submit a medical certificate to prove the status of their dependent. The certification can be obtained from qualified institutions. In case the disabled dependant is suffering from Autism, Cerebral Palsy, or multiple disabilities, the taxpayer will need to furnish Form number 10-IA.
9) Tax savings on the treatment of specified diseases under Section 80DDB: If as a taxpayer you have contacted diseases such as cancer, neurological diseases (dementia, motor neuron diseases, Parkinson’s diseases) or AIDS and others, which entail expensive treatment costs, you can avail tax deduction under Section 80DDB.
The deduction under section 80DDB is allowed for the medical treatment of a dependant who is suffering from a specified disease by individuals or HUF. The deduction is up to ₹ 40,000 or the amount actually paid (whichever is lower). This limit goes to ₹ 1 lakh in the case of senior citizen taxpayers or dependents.
10) Tax savings on donations made to charitable institutions under Section 80CCC: If you make any donations to an approved charitable institution, you can claim deduction under Section 80G of the income tax. The donation should be preferably made by cheque, as cash donations exceeding ₹ 2,000 do not qualify as deductions. To avail this deduction, you need a stamped receipt from the trust or institution to which you donate, with details of the address, name of the trust, and PAN of the trust or institution mentioned on it.
Depending on the institution to which you donate, tax deductions can be 50% or 100% of the donation but to a maximum of 10% of the adjusted gross total income of the taxpayer. Adjusted gross total income is the gross total income (sum of income under all heads) minus amount deductible under Sections 80CCC to 80U (but not Section 80G), exemption from income, long-term capital gains and income as referred under Sections 115A, 115AB, 115AC, 115AD, and 115D, relating to non-residents and foreign companies.
There are basically four buckets in which donations can be categorized to claim the deduction.
a) Donations with 100% deduction without any qualifying limit, such as the National Defence Fund set up by the Central Government.
b) Donations with 50% deduction without any qualifying limit such as the Jawaharlal Nehru Memorial Fund or the Prime Minister’s Drought Relief Fund
c) Donations with 100% deduction subject to 10% of adjusted gross total income such as Government or any approved local authority, institution or association to be utilized for the purpose of promoting family planning
d) Donations with 50% deduction subject to 10% of adjusted gross total income such as any institution which satisfies conditions mentioned in Section 80G(5)
There are other ways to reduce the tax outgo for salaried people, by way of structuring their salaries in a tax-efficient manner. These include provisions such as HRA, LTA, food coupons, and other allowances. Such salary structuring does not result in tax avoidance; it only helps you optimize your income tax liability. Use such opportunities if there is a way to pursue your employer to structure your salary in a tax-efficient manner.
Bottom line:
Taxpayers should know of the provisions where they could save on income tax; however, their objective of tax savings should be done without impacting their financial life. For instance, one should not be taking a home loan because there are tax savings to be claimed. Instead, those who do need a house and will be taking a home loan should consider ways to reduce their loan repayment burden with tax benefits. So, use available tax deductions where necessary and reduce your income tax liability.
-www.CAconsultant.org
