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Less known Deduction that can save Tax
Statistic proves that tax saving options don’t travel beyond Rs. 1.50 Lakh of deductions admissible u/s 80C towards payment of LIC/PPF/NSC/ELSS etc for lot of taxpayers. There are other tax saving tools too which are often ignored or not explored fully by the taxpayers in routine course of tax planning. Here are few of such options:
- Deduction towards Rent payment:
Taxpayers who are staying in a rented premises are entitled to deduction u/s 80GG of the Income Tax Act towards rent payment. The conditions for claiming deduction under section 80GG are as under:
a] Individual has to prepare a declaration in Form No.10BA.
b] Individual or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income there from is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) (i.e., income from self-occupied house property). The deduction admissible shall be the lower of the following:
(i) house rent incurred in excess of 10% of “Total Income”; or
(ii) Amount at 25% of “total income”; or
(iii) Rs. 5,000 per month.
There is no bar in paying the rent to the father, brother etc and claiming deduction u/s 80GG towards it if all other conditions are satisfied.
- Political contributions:
Of late, there are lot many persons who are making donation officially to the political parties. Any contributions by person (be it individual/HUF, Firm or company) to any registered political parties is eligible for deduction under Section 80GGC of the Income Tax Act-1961. However, no deduction shall be admissible if any such contribution is made in cash.
Helping hands by all the Indians across country to persons affected by recent flood in Kerala is a lively example of our culture. Caring & sharing is in the blood of Indians. Person donating the amount gets a tax breaks under Section 80G of the Income Tax Act. However, it is available only when the donation is done to trust/ institutions approved by the Income Tax Department. Donation should be given by mode other than cash. If done in cash then deduction would be restricted to Rs. 2,000/-. 100% of the amount is eligible for deduction if it is give to Government fund like PMRY, CMRY, etc whereas it will be 50% of the donation amount for most of the non-Government entities. Deduction amount is further restricted to 10% of the Gross Total Income (GTI) & no deduction is available for donation in kind (food, utensil, clothes etc).
- Insurance towards medical expenditure:
Health insurance is considered as an effective solution for the rising Medical expenditure in case of emergency. It also offers tax benefit u/s 80D to the extent of Rs. 25,000 a year (Rs. 30,000/- for senior citizens) for the premium paid for the health policy of self, spouse & children. An additional deduction of Rs. 25,000/- is available towards the health insurance premium of parents. One has to be careful while making the payment as only premium paid in electronic mode qualifies deduction.
Lot many taxpayers are not aware of the fact that expenses on “preventive health check-ups” also qualifies for deduction up to Rs. 5,000 a year. This is subject to the overall limit as mentioned above with an exception that it can be paid even in cash.
- Deduction while computing capital gain on sale of property:
All the capital expenditure incurred on the property is eligible for deduction while computing capital gain income. However, it is subject to the availability of proof, evidence & documents of expenditure over the property. In number of cases, the deduction is not claimed or deduction is denied due to non availability of the relevant old records & documents in support of the expenditure. It is advisable that the taxpayer should properly document expenditure like painting, boring, compound wall, POP, major repairs & maintenance, renovation, etc over the property so that deduction can be claimed at any subsequent date whenever the property is sold.
- Interest income:
Interest received from savings account with banks, post office or co-operative societies is eligible for deduction up to Rs. 10,000/- under section 8OTTA. This benefit though is not available if interest is earned from deposits from FD, RD etc. There are few banks which are now offering interest in saving bank account almost at par with the bank FDR. Taxpayer can plan in such a way that they make full use of deduction offered by section 80TTA. [From FY 2018-19, senior citizens have been given an enhanced benefit of deduction up to Rs. 50,000/- which even includes interest from fixed deposits u/s 8OTTB.]
- National Pension Scheme:
Rs. 50,000/- deduction is admissible under section 80CCD(1B) if amount is deposited in National pension scheme (NPS). This is over & above the deduction of Rs. 1.50 Lakh admissible u/s 80C. Since the commission structure for agents is almost negligible, no one is promoting /marketing the scheme. Taxpayer need to take the initiative for investment for claiming this additional deduction of Rs. 50,000/-. The benefit of NPS is no more restricted to salaried taxpayers but can be availed by businessmen & other taxpayers.
- Deduction towards Interest Payment:
Interest on education loans enables taxpayer to claim deduction u/s 80E of the Income Tax Act-1961. Deduction of the entire interest paid on loans taken for education of spouse, children is eligible for deduction. It is available for eight years, starting from the year in which taxpayer start paying the interest on the loan. Only loan taken from an approved financial institution, bank, or an approved charitable institution is eligible for deduction.
Similarly, interest paid on loan taken for buying/ constructing house property is also eligible for deduction u/s 24(b) up to Rs. 2 Lakh p.a. Lot many taxpayers are not aware of the fact that deduction would be admissible even in respect of interest on loan taken from friends & relatives. Borrowing from bank/institution is not compulsory for interest deduction. [Deduction u/s 80C towards principal repayment of loan is not available if the loan for purchase/construction of house is availed from friends & relatives. Its only interest payment that will be eligible for deduction].
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