A significant reason many people fail to maximise their tax benefits in India is due to a lack of awareness. One contributing factor could be that the ₹1.5 lakh deduction under Section 80C is prominently advertised and straightforward, causing many to assume it’s the sole option available.
The complexity of tax laws often complicates the process for many individuals. The intricacies of the Income Tax Act can be challenging to navigate, and understanding its various sections and deductions can be intimidating for some. Additionally, many people perceive tax filing as a mandatory task rather than a chance to save money.
Nevertheless, by being aware of numerous other tax-saving opportunities available, taxpayers can further minimise the taxes they owe. Below is a list of 10 methods to help you save on taxes besides Section 80C.
Tax saving with NPS under Section 80CCD(1B) + 80CCD(1)
You can invest up to ₹1.5 lakh in the National Pension Scheme (NPS) and avail a deduction for this amount from your taxable income under Section 80C. This benefit applies to all, irrespective of your tax bracket. Additionally, this section offers an additional deduction of up to ₹50,000 exclusively for NPS contributions. This is an excellent advantage, particularly for individuals in higher tax brackets.
Tax benefits on health insurance premiums under Section 80D
Section 80D offers a significant tax advantage to encourage health insurance coverage in India. For those unfamiliar, Section 80D of the Income Tax Act permits taxpayers to subtract a portion of the health insurance premiums they pay from their taxable income. This deduction applies to premiums paid for health insurance covering oneself, spouse, dependent children, and parents. The deduction limit is determined by your age:
- Up to ₹25,000 for oneself and family (if below 60 years old)
- Up to ₹50,000 for senior citizens (60 years and above) and for parents (irrespective of their age)
Additionally, there is an extra deduction of ₹5,000 for preventive health check-ups. It’s crucial to verify your specific health insurance policy document to ensure that the premiums are eligible for deduction under Section 80D, as there may be some exceptions.
Another section, Section 80DD, offers a deduction for medical expenses incurred on a dependent with a disability. The deduction limit under Section 80DD can be ₹75,000 or ₹1,25,000, depending on the severity of the disability. This could potentially be combined with the deduction under Section 80D to achieve a total tax benefit of ₹75,000 or ₹1,25,000, but these are distinct sections.
Tax benefits on the repayment of an education loan under Section 80E
Section 80E offers a significant tax advantage to alleviate the burden of education loans in India. This provision enables taxpayers to claim a deduction for the interest paid on an education loan. The loan should be availed for pursuing higher education (for oneself, spouse, or children) from a recognised financial institution or an approved charitable institution. The deduction can be claimed by either the parent or the student (child), depending on who is servicing the loan. There’s no limitation on who took out the loan initially.
There is no cap on the amount of interest that can be deducted. You can claim the full interest component of your EMI payments during the eligible period. The deduction is available for a maximum of eight years or until the interest is completely paid off, whichever comes first.
Tax benefits on the interest component of a home loan under Section 24
Section 24 of the Income Tax Act permits homeowners to avail of a deduction for the interest paid on their home loan. This deduction applies exclusively to self-occupied properties, i.e., the house you reside in. Different rules apply to rented properties.
The maximum allowable deduction for interest payment is ₹2 lakhs per financial year. This limit is cumulative, meaning it pertains to the total interest paid on all your self-occupied properties combined. An additional deduction of up to ₹1.5 lakh may be available under Section 80EE for first-time homebuyers who meet certain criteria, such as property value and loan amount.
Additionally, you can only claim a deduction for the interest component of your EMI payments, not for the principal amount. If the property for which the home loan is taken is not self-occupied and is rented out or deemed to be rented, there is no maximum limit for tax deduction. As a taxpayer, you can claim a deduction on the entire interest amount under Section 24.
Tax benefits on interest repayment for first-time homebuyers under Section 80EE
First-time homebuyers in India can avail significant benefits under Section 80EE of the Income Tax Act. First-time homebuyers can claim an additional deduction of up to ₹50,000 on the interest paid on their home loan under this section. This benefit is applicable only if you are purchasing a home for the first time, indicating that you do not own any other residential property at the time the loan is approved by the financial institution.
This deduction is distinct from and in addition to the ₹2 lakh deduction permitted under Section 24 for interest paid on home loans for self-occupied properties. By potentially utilising deductions from both sections, you can substantially decrease your taxable income and save on taxes.
Tax benefits on rent paid when HRA is not provided under Section 80GG
Section 80GG offers a significant tax advantage for salaried individuals who do not get a House Rent Allowance (HRA). This deduction applies to salaried taxpayers who do not receive HRA in their salary, possibly because they work in the informal sector or are self-employed. The maximum deduction allowable under Section 80GG is ₹60,000 per financial year. However, there are several important conditions to meet to avail of this benefit:
- You must not own a house in the city where you reside in a rented accommodation.
- You are not eligible to claim this deduction if you already claim a deduction for home loan interest paid on a property you own in another city (under Section 24).
Essentially, Section 80GG is designed to offer tax relief on rent expenses for those who do not receive HRA and do not own a property in the city where they reside.
Tax benefits on savings bank account interest under Section 80TTA and Section 80TTB
Individuals and Hindu Undivided Families (HUFs) can avail of a tax deduction on a part of the interest earned from their savings accounts. This deduction is provided under Section 80TTA of the Income Tax Act. The maximum deduction permitted under Section 80TTA is ₹10,000 per financial year. This applies to the total interest earned from all of your savings accounts collectively. This deduction is accessible to both senior citizens and individuals who are not senior citizens. The deduction applies solely to interest earned on savings accounts. Interest accrued on fixed deposits (FDs), recurring deposits (RDs), and other term deposits is not eligible for deduction under Section 80TTA or any other section about savings account interest.
Section 80TTB provides tax benefits to senior citizens on their interest income. This section applies to individuals aged 60 years and above. Senior citizens can avail of a deduction of up to ₹50,000 on their interest income from all sources, including savings accounts, FDs, RDs, and other term deposits.
Tax benefits on medical expenses for a disabled dependent under Section 80DD
Section 80DD provides a significant tax advantage for taxpayers with disabled dependents. This section permits you to claim a deduction for expenses spent on the medical treatment, training, or rehabilitation of a disabled dependent.
The dependent must be certified by a medical authority as a person with a disability, with the disability level being 40% or higher. For severe disabilities (80% or more), higher deduction limits apply. The dependent should be a relative as defined under the Income Tax Act, which includes parents, spouse, children, siblings, etc.
The deduction amount is predetermined and is not based on the actual expenses incurred. It varies according to the level of disability as follows:
- Up to ₹75,000 for a disability ranging from 40% to less than 80%.
- Up to ₹1,25,000 for a severe disability of 80% or more.
This deduction assists in lowering your taxable income, which could result in tax savings. However, you cannot claim this deduction if the disabled dependent themselves claim a deduction under Section 80U for their disability. You may need to provide documents such as medical certificates and proof of disability to avail of the deduction.
Tax benefits on the treatment of specified illnesses under Section 80DDB
Section 80DDB offers a beneficial tax deduction for taxpayers who bear medical expenses for themselves or their dependents due to certain specified diseases. This section permits you to claim a deduction for medical expenses spent on the treatment of diseases specified in the Income Tax Act.
The diseases covered under this section include:
- Cancer
- Neurological conditions such as dementia, motor neuron diseases, and Parkinson’s disease
- AIDS
- Other specified ailments
The deduction can be claimed for expenses incurred on the treatment of:
- Yourself
- Spouse
- Dependent children
- Parents
- Siblings
The dependent should be a relative as defined by the Income Tax Act. The deduction under section 80DDB is permitted for the medical treatment of a dependent suffering from a specified disease by individuals or HUFs. The deduction is up to ₹40,000 or the actual amount paid, whichever is less. This limit increases to ₹1 lakh for senior citizen taxpayers or their dependents.
Tax benefits on donations made to charitable institutions under Section 80G
Section 80G provides a significant tax advantage to encourage charitable donations in India. This section enables you to subtract a portion of your donation from your taxable income. Donations should be made to charitable institutions or funds endorsed by the Income Tax department. A list of approved institutions can be found on the Income Tax Department’s website. Cash donations exceeding ₹2,000 are not eligible for deduction under Section 80G. It is advisable to make donations through cheques or other digital payment methods.
The percentage of deduction you can avail varies based on the type of institution and the purpose of the donation. It could be:
- 50% of the donation amount (with or without a specified limit)
- 100% of the donation amount (up to 10% of the adjusted gross total income)
There are four primary categories of donations eligible for tax deductions under Section 80G of the Income Tax Act in India. Here’s a breakdown of each category:
Category (a) 100% deduction without limit:
- Donations made to specific government-supported funds or organisations. For example, the National Defence Fund established by the central government.
Category (b) 50% deduction without limit:
- Donations made to certain charitable institutions or funds. While there is no cap on the donation amount, only 50% of the donation is deductible from your taxable income. For example, the Jawaharlal Nehru Memorial Fund and the Prime Minister’s Drought Relief Fund.
Category (c) 100% deduction subject to 10% of Adjusted Gross Total Income (AGTI):
- Donations made to specific entities supporting family planning initiatives. You can claim a deduction for the full donation amount, but the deduction is limited to 10% of your AGTI. For example, contributions to the government or approved institutions specifically for family planning programs.
Category (d) 50% deduction limited to 10% of AGTI:
- Donations made to various charitable institutions that fulfill the criteria set out in Section 80G(5) of the Income Tax Act. Similar to Category (c), there are dual limitations. You can deduct only 50% of the donation amount, and this deduction is also capped at 10% of your AGTI. For example, contributions to numerous NGOs.
To qualify for the deduction, you must have a receipt from the donation institution. This receipt should be stamped and contain details such as the institution’s name, address, PAN, and the donation amount. However, donations in kind (such as clothes, food, etc.) typically do not qualify for a deduction under Section 80G. By availing of a deduction under this section, you can lessen your tax liability while contributing to deserving causes.
There are alternative methods for salaried individuals to minimise their tax liability by optimising their salary structure for tax efficiency. The key is to organise your income to mitigate excessive tax burdens. If you are unfamiliar with tax obligations, it might be beneficial to seek advice from a tax consultant for further guidance.
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Published: 30 Mar 2024, 04:21 PM IST