For many tax planning starts as well as ends with Section 80C – which enunciates investment instruments for tax saving. But investing only in these investment instruments would not lead to optimal reduction of your tax liability. Our Income Tax Act, 1961 also considers the humane side of our life and also gives deduction for such expenditure.
So, let’s explore such options in which, we can avail deduction beyond of Rs1lakh i.e. under section 80C. Herein below is the list of some major ones.
• Premium paid for medical insurance(Section 80D)
The premium paid by you on medical insurance policy, commonly referred to as a medi-claim policy to cover your spouse and you, dependent children and parents against any unexpected medical expenses, qualifies for a deduction under Section 80D. It is allowed up to maximum amount of Rs15,000 annually, if you pay for yourself, spouse and dependent children. And if you are a senior citizen, the maximum deduction gets extended to Rs20,000.
Further, if you pay medical insurance premium for your parents irrespective of whether they are dependant or not on you, you can claim an additional deduction of up to Rs15,000 under this section and if your parents are a senior citizen, the maximum deduction gets also extended to Rs20, 000. So, for example, if you pay a premium of Rs15,000 for yourself and Rs15,000 for your parents, you will be eligible for a total deduction of Rs30,000 and can be extended up to Rs40,000 as the case may be.
Payment on account of preventive health check-up of self, spouse, dependent children and parent up to Rs 5,000 can also be include in above overall limit of deduction.
Payment should be made by any mode other than cash. However, payment on account of preventive health check-up can be made by any mode including cash.
• Maintenance including medical treatment of handicapped dependent: (Section 80DD)
If you have incurred any expenditure in the form medical treatment including nursing, training and rehabilitation for a handicapped “dependent” suffering from disability, then the expenditure so incurred by you qualifies for deduction under Section 80DD of the Income Tax Act.
The quantum of deduction here depends upon the severity of the disability suffered by the “dependent”. Hence, if the “dependent” is suffering from 40% of any disability, you would be entitling to a deduction of a fixed sum of Rs 50,000 p.a. from your GTI irrespective of the expenditure incurred or amount deposited. Similarly, if the “dependent” is suffering from severe disability 80% or above of any disability, then you claim a higher deduction of fixed sum of Rs1 lakh from your GTI irrespective of the expenditure incurred or amount deposited.
• Expenditure incurred on your medical treatment: (Section 80DDB)
If you have incurred expenditure on your medical treatment or for your “dependents”, then too the expenditure so incurred, makes you eligible for deduction under Section 80DDB. The deduction from your GTI, which you are entitled to, is Rs40,000 or the amount actually paid, whichever is lower. And if you are a senior citizen, then you are eligible for a deduction of Rs 60,000 or the amount actually paid, whichever is lower.
• Interest on loan taken for pursing higher education: (Sec. 80E)
While pursuing a personal goal of enrolling for “higher education” in order to be competitive enough to meet your financial goals; the Income Tax Act offers you deduction from your GTI, when you take a loan to fulfill such dreams.
Sure, you can also take an education loan for your wife’s or children’s education or for any person, minor for whom you are the legal guardian. But that makes you eligible for deduction under Section 80E of the Income Tax Act, to the extent of the interest paid on such a loan taken.
The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. So, to simplify it further, the deduction is available from the year in which you start paying the interest on the loan, and the seven immediately succeeding financial years or until the interest is paid in full, whichever is earlier.
• Donations to certain funds and charitable institution: (Sec. 80G)
The deductions allowed can be 50% or 100% of the donation, subject to the stated limits as provided under this section. For example, donations to “National Defence Fund” set up by the Central Government are allowed 100% deduction, while for “Prime Minister Drought Relief Fund” are allowed at 50%. Under the Income Tax Act, if you make donations to any of the host of notified funds and / or charitable institutions, you are eligible for deduction under Section 80G.
• Rent paid in respect property occupied for residential use: (Section 80GG)
If you are a self employed or a salaried individual who is not in receipt of any House Rent Allowance (HRA), and is paying a rent for an accommodation (irrespective whether furnished or unfurnished) occupied for residential use, then you can claim a deduction under this section. But as a pre-condition for availing deduction under this section, you or your spouse or your minor child must not own any residential accommodation either in India or abroad. And the deduction which will be available to you under this section is the least of:
25% of the total income or,
Rs 2,000 per month or,
Excess of rent paid over 10% of total income
• Contribution made to any political parties or electoral trust: (Section 80GGC)
Say, if you have some nepotism for any political party or electoral trust as you appreciate the work done by them; and therefore decide to make a monetary contribution to the party or electoral trust, then the amount so contributed would be eligible for a deduction under this section.
• Specified disability (s): (Section 80U)
If you as an individual resident in India is suffering from any specified disability i.e. not suffering from not less than 40% any specified diseases given below, then you would be eligible for deduction under this section.
The deduction available under this section is flat Rs50,000, immaterial of the expenditure incurred. But if the disability is severe in nature 80% or above, then one is entitled to flat deduction of Rs1 lakh.
However in order to avail of the deduction, one need to file copy of certificates issued by the medical authority, at the time of filing returns.
• Investment made under Rajiv Gandhi Equity Scheme: (Sec. 80CCG)
From the assessment year 2013-14, new section has been inserted as you can invest in listed shares in accordance with the notified scheme and can get deduction is 50 per cent of amount invested in equity shares or Rs25,000 whichever is lower. The deduction is available to a resident individual, if his gross total income does not exceed Rs12 lakh. The investment is locked-in for period of 3 years from the date of acquisition.
We have seen that your extra step toward all options for tax savings optimization way would enable you to wisely reduce your tax liability.
Also one needs to look beyond the ambit of section 80C, as you may exhaust the limit of Rs1 lakh and still find it insufficient to reduce your tax liability. So, you should access the other deduction available under other 80s as outlined above.
We think that while you must take help of your financial planner while claiming these deductions and seek opinion from him/her, we also think that a self-study approach on your tax planning exercise is quite necessary as one should be well versed with the at least those tax provisions which affect us directly.
And with that note we wish you all Happy Tax Planning!!