Starting January, you will be running around to make investments in tax-saving instruments or collect proofs for such investments already made. Most of us are aware of the tax deductions available for premium paid for life insurance and pension plans, investments made in ELSS, PPF and EPF and principal repaid on a housing loan. However, there are many lesser known tax benefits you can use to reduce your tax liability. In this post, I shall focus on a few such lesser known income tax deductions or exemptions.
Interest income on Savings Bank Account (Section 80TTA)
Interest earned on the savings bank account is exempt from tax up to a maximum of Rs 10,000 per financial year under Section 80TTA of the Income Tax Act. Please understand this is for all the savings bank accounts put together. Moreover, this exemption is applicable to only interest earned on savings bank accounts. There is no such relief for the interest earned on fixed deposits.
Interest on education loan (Section 80E)
The entire interest paid towards a loan taken for your higher education (or of a relative) qualifies for income tax deduction under Section 80E. Relative includes spouse, children or any individual for which you are the legal guardian. Higher education means any course of study pursued after passing Senior Secondary examination. The deduction is available for 8 years starting from the year you start repaying such loan.
Deduction on rent paid if you are not availing HRA (Section 80GG)
This is applicable to those who are self-employed or are not availing House Rent Allowance (HRA).
You can avail deduction under Section 80GG to the least of (
Rs 2,000 Rs 5,000 per month, 25% of total income, Rent – 10% of annual income). There are a few conditions to be met.
You, your spouse or minor children shall not own residential accommodation at the place of your employment. Additionally, you must not have availed any HRA during the entire financial year. You should not have any self occupied residential premise in any other place. If you were employed for 2 months in the year (and availed HRA) and were self-employed during the remaining period, you can not avail this deduction.
Stamp duty and registration charges of your house (Section 80C)
All of us are aware that the principal repayment of a housing loan is eligible for deduction under Section 80C. Apart from repaid principal, you can also claim deduction for stamp duty and registration fees under Section 80C in the year of purchase. You can avail this deduction for these expenses even if you have not taken a home loan.
Interest on loan for a let out property (Section 24)
If you have taken a home loan for purchase/construction of a house, you can avail deduction up to Rs 2 lacs under Section 24. This is for a self-occupied property.
On the other hand, if the house is let out (rented) or deemed-to-be-let-out, there is no such cap. You can deduct the entire interest paid from the income from the house property (rent or notional rent). If the interest amount exceeds the rent, you can adjust the loss against the income from other heads including salary.
For the let-out property, the unlimited tax benefit for the interest paid has been withdrawn in Budget 2017. The loss under income from house property per financial year has been capped at Rs 2 lacs per financial year. This cap is effective FY2018. Any excess loss can be carried forward for 8 years. You can read more about the changed regulation here.
Premium paid for Health Insurance and preventive health checkup (Section 80D)
You can claim deduction up to Rs 25,000 for health insurance premium paid (for self, spouse and children) during the financial year. If either you or your spouse is a senior citizen (>= 60 years), the deduction limit goes up to Rs 30,000 per financial year. You can also claim deduction up to Rs 5,000 for preventive health checkup for self, spouse and children. However the total tax benefit for health insurance and health checkup is limited to Rs 25,000 (or Rs 30,000).
In addition to that, health insurance premium paid for your parents is also eligible for deduction up to Rs 25,000 per financial year. If either parent is a senior citizen, the limit goes up to Rs 30,000. The deduction limit includes any payment (up to Rs 5,000) made for preventive health checkup of your parents.
To avail deduction, the premium payment cannot be made in cash. It has to through a banking channel (cheque, demand draft, credit card, debit card, net banking etc). However, payment for preventive health checkup can be made in cash.
So, if you are 35 and your parents are senior citizens, you can claim maximum benefit of Rs 55,000 for health insurance premium and preventive health checkups for self, spouse, children and parents.
Medical Expenses for uninsured Super Senior Citizens (>= 80 years) (Section 80D)
If you are a very senior citizen (>= 80 years) and have not purchased any health insurance, you can avail deduction for medical expenditure incurred up to Rs 30,000 per financial year. However, please note the total deduction that can be availed for health insurance, preventive checkup and medical expenses shall not exceed Rs 30,000.
For instance, you are a very senior citizen but your wife is not. You don’t purchase health insurance for yourself but purchase one for your wife. The deduction for your medical expenses, health insurance of your spouse (or children) and health checkup is limited to Rs 30,000.
Similarly, if either of your parent is a very senior citizen and uninsured, you can avail deduction for medical expenses incurred up to Rs 30,000 per financial year. Please understand medical expenses are eligible for deduction only for the parent who is a very senior citizen. As mentioned above, the total deduction for premium payment, health checkup and medical expenses is limited to Rs 30,000 per financial year.
Treatment cost for specified illness (Section 80DDB)
You can claim deduction to the extent of Rs 40,000 for medical expenses incurred for specified ailments for self and dependent relatives. You can claim for spouse, parents, children and siblings. The deduction limit increases to Rs 60,000 in the amount is spent for the treatment of a senior citizen (>=60 years). The deduction increases to Rs 80,000 if the treatment cost is incurred for a very senior citizen (>=80 years).
You cannot claim deduction if you have already claimed reimbursement for the treatment cost under any insurance policy. You need to attach a certificate from a specialist doctor while filing income tax returns. Certificate from specialist doctors from both private and government hospitals will suffice. The list of specified ailments is provided in Rule 11DD. Major illnesses such as cancer, dementia, chronic renal failure, Parkinson disease, Hemophilia are covered.
Deduction for treatment cost of a dependent with disability (Section 80DD)
You can claim deduction up to Rs 75,000 for expenditure towards medical treatment, nursing, training and rehabilitation of a dependent with disability. Dependent can be spouse, parents, children and siblings. The amount can also include payment towards any scheme for the maintenance of such dependent. In case of dependent with severe disability, the deduction limit is Rs 1.25 lacs. You need to submit a supporting medical certificate. For more details, refer to Section 80DD and Rule 11A of Income Tax Act.
Deduction in case of person with disability (Section 80U)
If the tax-payer is a person with disability, he/she can claim additional deduction of Rs 75,000 under Section 80U. There is no relation to treatment costs. In case of severe disability, the deduction limit goes up to Rs 1.25 lacs.
Amount invested in NPS (Section 80CCD)
You can invest up to Rs 1.5 lacs in NPS (National Pension Scheme) to avail tax benefits under Section 80C. Please note the capping of Rs 1.5 lacs is for all the 80C investment products combined. Apart from this, you can invest a further Rs 50,000 in NPS to get income tax deduction under Section 80CCD (1B). This is an exclusive deduction and not available to any other product.
For instance, you can invest Rs 1.5 lacs in PPF or ELSS (or any other 80C product) and Rs 50,000 in NPS to avail total tax benefit of Rs 2 lacs per financial year. Alternatively, you can even invest the entire Rs 2 lacs in NPS to claim tax benefit of Rs 2 lacs (Rs 1.5 lacs under Section 80C and Rs 50,000 under Section 80CCD).
Employer Contribution under NPS (Section 80CCD)
Contribution from the employer up to 10% of Basic Salary + Dearness Allowance is also eligible for deduction under Section 80CCD(2). There is no upper cap (in terms of amount) on this tax deduction. This deduction is over and above the ceiling limit of Rs 1.5 lacs provided under Section 80C. However, this benefit is available only to employees. Self-employed cannot avail this deduction. You may have to talk to your employer to restructure your compensation package to avail this benefit.
Interest on loan taken for repair and maintenance of house property (Section 24)
If you have taken a home loan for repair or reconstruction of your house, you can avail deduction up to Rs 30,000 per financial year under Section 24 on interest paid for such loan.
Investment in Specified shares or Central Government Notified Scheme (Section 80CCG)
50% of any investment in specified shares or notified schemes (Rajiv Gandhi Equity Savings Scheme) is eligible for deduction up to a maximum of Rs 25,000. There are many sub-conditions. You have to be a new investor. Your gross total income cannot exceed Rs 10 lacs. There is a lock-in of three years on investment. There are multiple operational hassles too. This sub-section is a classic example of how to complicate simple things. One of those cases that make you wonder “What were they thinking?” Nonetheless, it is an option available to new investors.
Donation towards social causes or to specific bodies/funds (Section 80G)
Various donations are eligible for deduction under Section 80G. The extent of deduction (50% or 100% of the donated amount) or any caps (with or without restriction) shall depend on the bodies/funds you are donating to.
Some of you might already be incurring expenses that are eligible for aforementioned deductions. If you are not claiming these expenses as deduction, gather all the necessary documents and start claiming from this financial year.
About eligible investments, do not make these investment choices just for the sake of saving taxes. Even traditional insurance plans (endowment plans, money back plans) can save you taxes under Section 80C. But these insurance plans don’t serve any purpose in your portfolio. Therefore, pick up a financial product that fits the overall scheme of things. Nothing like it if it offers tax benefits too.
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The aforementioned tax deductions may have further sub-conditions. You are advised to seek services of a tax consultant for better clarity.
This is no way a holistic list of income tax deductions. I am sure there are many others. If you are aware of any deductions that fellow readers can find useful, do leave your inputs in the comments section.
The post was first published on December 5, 2015