In some cases, the taxpayer can claim tax exemptions even if he has made no investment. Here are five ways to save the most taxes.
Various tax deductions are allowed under the Income Tax Act if the taxpayer invests in qualifying tax saving instruments. However, in some cases, the taxpayer can claim tax exemptions even if he has made no investment.
Let’s see the five ways to save the most taxes:
1) Housing allowance
Employees applying for HRA and living in a rented home can save tax by claiming exemption from HRA under the Income Tax Act. The HRA allowance is either fully exempt or partially exempt under Section 10. To find out the amount of the exemption, calculate-
- 50% of salary (basic salary and high cost allowance) for inhabitants of metropolitan cities, and 40% of salary for non-metropolitan cities,
- Actual rent paid greater than 10% of salary (basic salary and high cost allowance).
The lower of these calculated amounts will be the tax-exempt amount.
If you stay with your parents and receive HRA from your employer, you can claim HRA exemption by paying monthly rent to your parents.
2) Loan for studies
Another tax saving idea without investment is to claim the deduction for the interest paid on the student loan. Section 80E allows the deduction of interest paid on student loans taken out with a financial institution. You can claim the total gross income deduction, which reduces taxable income. The loan is to be taken for higher education i.e. any course after passing the higher secondary examination or equivalent, in India or abroad. You can benefit from it for 8 consecutive years, starting from the year you start paying the interest. The education loan for which the deduction is authorized can be taken out for the education of oneself, of the spouse, of the children or of a student of whom you are the legal guardian.
3) Housing loan
The Income Tax Act allows the deduction under section 24(b) of interest on the loan for the purchase/construction of a house. A deduction of Rs 2 lakh is allowed for a self-occupied residential property. There will be a loss under “income from home ownership” taking the deduction for independent property. This loss can be adjusted with the other heads of income during the year. However, the deduction amount will be Rs 30,000 instead of Rs 2 lakh,
(i) If the new property is not built within five years of the end of the financial year in which the loan is taken
(ii) In the event that the loan used is for reconstruction, repairs or renewals of unoccupied residential property
For rented/leased property, actual interest incurred on the loan used for acquisition, construction, repair, reconstruction will be allowed as a deduction.
Pre-construction interest or interest for the period preceding the year of acquisition/construction of the property of the house is deductible in five equal installments, starting in the year of initial construction of the property.
Additionally, you may also claim a deduction for interest payments under Sections 80EE and 80EEA, subject to specified conditions. It is in addition to the deduction of Rs 2 lakh provided under Section 24 of the Income Tax Act. You can make the most of these deductions. However, the deductible limit of Rs 2 lakh under Section 24 must be exhausted first.
After that, you can apply for additional benefits under Section 80EE/80EEA. Therefore, taxpayers can claim a total deduction of Rs 3.5 lakh for interest on home loan if they meet the conditions of Section 80EEA.
If the conditions specified in Section 80EE are met, you can claim the full deduction of Rs 2.5 lakh.
4) Medical expenses for senior parents
Section 80D allows a deduction for health insurance premiums paid for self and family members. If you have paid the health insurance premium for yourself, your spouse or your dependent children, you can deduct Rs 25,000. Also, an additional deduction of up to Rs 25,000 is allowed when claiming of the medical insurance premium paid for parents aged over 60. The deduction also relates to the purchase of a Covid-specific health insurance policy such as Corona-Kavach. In addition, when the insured is an elderly person, the deduction ceiling is extended to Rs 50,000.
Additionally, for an elderly person who does not have medical insurance, medical expenses may be deducted under Section 80D subject to an overall cap of Rs 50,000. Similarly, a separate deduction of up to up to Rs 50,000 is allowed for medical expenses incurred for elderly parents.
This section also allows a deduction for preventive health check-up expenses up to Rs 5,000. The amount of expenses is included in the overall limit, if any. The above expenses must be incurred by any mode other than cash. However, preventive health check fees are allowed if paid in cash.
5) Children’s school fees, education allowance and accommodation allowance and school fees
Any allowance (up to specified limits) for the upbringing of children (children’s allowance) as well as for accommodation costs (lodging allowance) granted to an employee by his employer is permitted as an exemption in under Article 10. The exemption is limited to Rs 1,200 per year. for child raising allowance and up to Rs 3,600 per year for accommodation cost allowance, but up to a maximum of two children.
In addition, tuition fees paid to any college, school or other recognized educational institution located in India for the full-time education of two children are allowed as a deduction under Section 80C. Any taxpayer (employee and non-employee) can benefit from this deduction if the school fees described above are paid for their children. However, only the tuition component can be claimed under Section 80C.
Also, no deduction is available if payment is made to a foreign educational institution. It is also important to note that child-raising allowance differs from school fees. Deduction of child education allowance is only allowed if it is part of the salary component and the taxpayer has incurred expenses for the education of his children up to Rs 1,200. However, in the case of school fees, they are deductible based on the actual expenses incurred for the education of the children to the extent of Rs 1.5 lakh under Section 80C, even though they are not part of the taxpayer’s salary .
(The author is Founder and CEO, Clear)