When it comes to tax-saving instruments, many of us stop with the Rs1.5 lakh deduction under Section 80C. But there is a lot more you can do to lower your taxes. You get tax breaks when you donate, pay health insurance premiums, incur medical expenses and repay education loans. Ditto when you service a home loan. There’s also tax to be saved on interest from banks and post office.
Here’s how you do it.
Donate to institutions and funds approved by the Government which gets you deduction under Section 80G of the Income Tax Act. You won’t get the benefit if you give in kind (clothes or utensils). Also, cash donations are eligible only up to Rs. 2,000 a year from FY 2017-18 (from the Rs 10,000 limit earlier). If you plan to give a bigger sum, do so by cheque or online transfer.
What you donate to many Government-run entities is entirely tax deductible, but the deduction is limited to 50 per cent of the donation to most non-Government entities. This tax break may be further limited to 10 per cent of your gross total income.
Cover your health
A medical emergency can arise any time; so, get health insurance. Under Section 80D, you get a deduction of up to Rs. 25,000 a year for the premium you pay to get health insurance for yourself, your spouse and your dependent children. This goes up to Rs. 30,000 if any of you is a senior citizen (further increased to Rs. 50,000 from FY 2018-19).
Besides, if you pay the health insurance premium to cover your parents, you get an additional deduction of Rs. 25,000 a year (Rs.30,000 if either of your parents is a senior citizen; this has been further increased to Rs 50,000 from FY2018-19). But only premium payments in non-cash modes qualify for tax breaks. Expenses on preventive health check-ups, too, get you a deduction up to Rs. 5,000 a year. This is part of the overall limit and this can be paid even in cash.
Claim medical expenses
If you incur expenditure for the medical treatment, training and re-habilitation of a dependent spouse, children, parents or siblings who are disabled, you get deduction under Section 8ODD. You also get the benefit if you buy an annuity or lump sum payment policy for the benefit of such dependents.
The tax deduction is a fixed Rs. 75,000 a year, which goes up to Rs. 1.25 lakh if the disability is severe.
You can also get deduction on medical expenditure incurred on specified illnesses such as neurological diseases, cancer, AIDS, chronic kidney failure and haematological disorders.
This deduction under Section 8ODDB is available if you incur the medical expense for yourself or a de-pendent spouse, children or siblings. The tax break you get is the higher of the actual expense incurred or Rs. 40,000 (Rs. 60,000 if the person undergoing treatment is a senior citizen and Rs. 80,000 in the case of a very senior citizen; from FY 2018-19, the amount has been enhanced to Rs. 1 lakh for both senior and very senior citizens). The deduction will be reduced by the expense reimbursed by your insurer or employer.
Claim interest on loans
Interest paid on education loans and home loans can save you a tidy sum in tax.
- Section 80E allows deduction of the entire interest paid on loans to fund your education or that of your spouse, children or someone you take care of as a legal guardian. The loans must fund a Government-recognised course of study.
Also, the deduction is allowed only if the loan is taken from an approved financial institution or an approved charitable institution. You can claim the tax break for eight years, starting from the year you start paying the interest on the loan.
- Repaying your home loan gets you two tax benefits. Principal re-payment, whether as part of the monthly installment or prepayment, is eligible for tax deduction, up to Rs. 1.5 lakh a year under Section 80C.
Besides, the interest payable on the loan taken to buy, construct, re-pair, renew or reconstruct your house is allowed as deduction under Section 24(b). The interest deduction for self-occupied homes is restricted to Rs. 2 lakh a year while for let-out and deemed let-out proper-ties, the loss from house property cannot exceed Rs. 2 lakh a year; the balance loss can be carried forward for set-off for up to eight assessment years.
Besides, you get deduction on the interest payable on the loan till the house is acquired or constructed. This can be claimed in equal installments for five years from the year in which the property is acquired or constructed. This deduction though is subject to the Rs. 2 lakh limits mentioned above.
- Besides, you get deduction on the loan taken upto Rs. 35 Lakhs for a residential property valued upto Rs. 50 Lakhs of Rs. 50 thousand under section 80EE. Interest deduction once taken under this section will not be eligible to take deduction under any other section.
If you are earning interest on your savings deposits with banks, post office or co-operative societies, you need to declare it as income. But the taxman allows you deduction of such interest up to 10,000 under Section 8OTTA. This benefit though is not available on interest from other deposits such as fixed deposits, recurring deposits and corporate bonds. From FY 2018-19, senior citizens have been given an enhanced benefit. Their interest income on deposits (including fixed deposits and savings account deposits) shall be eligible for deduction up to Rs.50,000 under Section 8OTTB. But with this, the Rs. 10,000 deduction benefit under Section 8OTTA will not be allowed.
If you give contributions to political parties, the amount is allowed as deduction under Section 80GGC. But such contribution should be made in non-cash modes.
National Pension Scheme
If you give pay or deposit any amount to national pension scheme or any other scheme notified by Central Government, a sum equal to 10% of the salary in case of employer and 20% of GTI, in any other case shall be allowed as deduction under section 80CCD(1). An additional deduction amounting to Rs. 50000 is available to the assessee under section 80CCD(1B) if amount is deposited in National pension scheme whether or not he/she has claimed any deduction u/s 80CCD(1).
Person with Disability/Severe Disability
If any person suffers any disability certified by the medical authority, deduction amounting to Rs. 75000 shall be allowed under section 80U. if the disability is severe then the deduction shall exceed to Rs. 125000. A Certificate from the medical authority need to be attached in the prescribed form alongwith the return of income to claim the said deduction.
By: CA Amit Kumar Garg