Like most taxpayers, you may know about the tax benefit of ₹1.5 lakhs available under section 80C of the Income Tax Act, 1961. The investment options under this section include employee provident fund (EPF), public provident fund (PPF), life insurance premium, tax-saving fixed deposits, and many more.
However, apart from these, there are various other investment options that can help reduce your tax liability. Read on to know about other ways to save taxes.
Deductions under section 80D
Health insurance premium
Section 80D of the Income Tax Act, 1961 provides tax benefits on medical insurance. Under this section, premium paid for purchasing health insurance for self, spouse, dependent children, and parents is eligible for tax deduction.
The maximum deduction that can be claimed depends on the members covered under the policy and their age. Moreover, tax deduction of up to ₹5,000 is available for health check-up expenses for self or family.
Medical expenses for a disabled dependent
Section 80DD exempts any expenses related to the treatment of disabled dependents. Some of these include training, nursing, and rehabilitation of dependents. This deduction is available to individual and Hindu Undivided Family (HUF) taxpayers.
Treatment for specified diseases
Under section 80DDB, individual and HUF taxpayers may claim deductions on expenses incurred for treating certain specified diseases.
Some of these include neurological disorders like dementia, Parkinson’s, ataxia, and motor neuron ailments; hematological ailments like hemophilia and thalassemia; renal failure, and malignant cancers. The deduction limit under section 80DDB is as follows:
- If the age of the person undergoing medical treatment is less than 60 years, they may claim ₹40,000 or actual incurred expenses for the treatment, whichever is lower.
- Senior citizens aged over 60 years may claim ₹1 lakh or actual incurred expenses for the treatment, whichever is lower.
Repayment of education loan (section 80E)
Under section 80E, interest paid on education loan availed for self, spouse, or any student for whom you act as a legal guardian is eligible for tax deduction. You can claim the benefit for seven years from the year you begin loan repayment, or until the entire interest is paid, whichever is earlier.
However, the deduction can be claimed only if the loan is taken for pursuing higher education from an approved lender and not from relatives, friends, or family members.
Interest payment on a home loan (section 24)
If you have availed of a home loan, you can claim a tax deduction on the interest component of the equated monthly installment (EMI) under section 24.
The loan must be on a self-occupied property, and the maximum deduction is limited to ₹2 lakhs per year. On the other hand, if the loan is taken for a rented or deemed to be rented property, there is no maximum limit on the tax deduction.
Therefore, you can claim the entire interest as a tax deduction.
Interest payment on a home loan for first-time homebuyers (section 80EE)
First-time homebuyers can claim tax deductions of ₹50,000 under section 80EE of the Income Tax Act, 1961. This is in addition to the interest deduction of ₹2 lakhs available under section 24.
However, the property value should be less than ₹50 lakhs and the home loan amount cannot exceed ₹35 lakhs.
Interest paid on loan availed for an electric vehicle (section 80EEB)
Under section 80EEB, you can claim tax deductions of up to ₹1.50 lakhs if you have availed of finance to buy an electric vehicle. To be eligible for this benefit, the loan should be taken between 1st April 2019 and 31st March 2023.
Rent paid for accommodation (section 80GG)
Another tax-saving option is available under section 80GG. If you are a salaried individual but do not receive house rent allowance (HRA) or if you are self-employed, you can claim rent paid as tax deduction.
The maximum limit is ₹60,000 and is not available if you live in a rented house in the same city where you own a house. Additionally, if you claim interest deduction under section 24, this tax benefit is not available.
Interest received from savings bank account (section 80TTA)
Section 80TTA provides taxpayers with another income tax-saving option on the interest earned on their savings accounts. The maximum benefit available is capped at ₹10,000 per year.
Interest earned from deposits in case of senior citizens (section 80TTB)
Section 80TTB offers tax benefits to senior citizens on their interest earnings. The maximum limit under this section is ₹50,000 per annum. Senior citizens may claim tax benefits on interest earnings from deposits with post offices, banks, or co-operative banks.
Long-term capital gains on the sale of residential property (section 54)
Tax benefits under section 54 are available for individual and HUF taxpayers. The long-term capital gains earned on the sale of a residential property owned for at least 24 months are tax exempt.
The benefit is available if you buy a new property within one year before the date of sale, or two years after the sale, or construct a house within three years from the selling date.
Section 54EC also allows for exemption on capital gains earned from the sale of land or building. However, the profit must be invested in Central government-specified bonds, National Highways Authority of India (NHAI) bonds, or Rural Electrification Corporation (REC) bonds. The maximum deduction is limited to ₹50 lakhs.
Frequently asked questions (FAQs)
How does income tax work?
Income tax is an important revenue source for the government and every citizen who earns an income is liable to pay tax according to the rules of the Income Tax Act, 1961. The money is used for infrastructure development and maintenance of public facilities. It is important to pay taxes and file returns on time.
How to save tax over and above section 80C?
Taxpayers may benefit from tax deductions under the following sections:
- 80D deductions on medical insurance premium.
- 80EE benefit on interest payment on home loan for first-time homebuyers.
- 80EEB exemption on interest on an auto loan for purchasing an electric vehicle.
- 80GG rent deduction if income does not include HRA.
- Tax benefits under the section 80G exemption list for donations to charitable institutions.
- 80TTA benefit on interest earned from savings accounts.
- Interest deduction on home loan under section 24.
- Capital gains exemption under sections 54 – 54F.
What is the maximum deduction under section 80D?
Tax deduction under section 80D is available for medical insurance premiums for self, spouse, dependent children, and parents. The deductions are as follows:Insured Deduction limit (INR) Health check-up (INR) Total (INR) Self and family 25,000 5,000 30,000 Self, family, parents below the age of 60 years 50,000 5,000 55,000 Self, family, and parents above 60 years old 75,000 5,000 80,000 Self (above 60 years old), family, and parents (above 60 years old) 1,00,000 5,000 1,05,000
What is section 24 of the Income Tax Act?
Section 24 provides exemption on the interest paid on a home loan for an amount up to ₹2 lakhs per year for self-occupied properties. If the property is rented, the entire amount paid as interest is eligible for tax exemption. The benefits are reduced to ₹30,000 if the following criteria are not met:
- The loan should be availed for constructing or buying a house.
- The date of availing of housing finance must be after 1st April 1999.
- If the property is under construction, it should be completed within five years.
How does section 80D work?
Section 80D deduction cannot be claimed if the premium is paid in cash. The benefit is available if your spouse and parents are not dependent on you. However, it is not available if you pay the premium for your children who are not dependent on you. Moreover, the maximum section 80D deduction limit is combined for all family members and is not available separately for each individual.
What disabilities are covered under section 80DD?
Section 80DD deductions are available for ailments like blindness, autism, locomotor disabilities, cerebral palsy, low vision, hearing impairment, mental illness, leprosy-cured, and mental retardation.
Who is considered disabled dependent under section 80DD?
Any disabled family member including spouse, children, and parents are considered dependent under this section. In the case of a Hindu Undivided Family (HUF), any member of the HUF is considered a disabled dependent.
What is the maximum deduction under section 80DD?
The maximum limit varies based on the disability. If the disabled dependent suffers from 40% of the specified ailment, tax deduction of up to ₹75,000 can be claimed for medical expenses incurred for the treatment.
Severely disabled dependents suffer from 80% or more of the specified ailment. The maximum deduction limit under this section is capped at ₹1.25 lakhs for medical treatment costs.
Understanding and investing in various tax-saving schemes can help reduce your tax liability by a significant amount. However, while planning your finances, you must not let just the tax savings drive your decision.
For example, do not avail of a home loan simply to claim benefits under section 24. Taking advantage of the various tax deductions under the Income Tax Act, 1961 should be a thoughtful decision.
This is a companion discussion topic for the original entry at https://jupiter.money/resources/how-to-save-tax-2/