In India, most taxpayers tend to think and probably aware that tax savings end with just investing in specified instruments such as life and health insurance premiums, PPF, NSCs, five year tax deposits and equity mutual funds etc. For them, arranging the money for tax saving instruments is a bigger challenge than worrying about the tax due to paucity of funds. They are not motivated enough to learn how they can claim income tax deductions by certain deductions on their personal expenses too. They are unaware of ways to save tax through inconspicuous sections of the Income Tax Act which consider the humane side of their life. If you fall one of those in this category, this cobra post would give you some help optimally to reduce tax burden without any shell out of your funds.

Every individual has been incurring some routine expenses during the current financial year relating to their children, home rent, medical treatment of a dependent handicapped, donations to spiritual places, contribution in monetary form to political parties etc. could give you tax relief and you may not be just required to invest into them.

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So, let’s understand how each of the above expenses for a cause or an investment can help you in reducing your tax liability and become part of your effective tax planning.

  • Children’s Tuition Fee

Every parent used to pay school children’s fee as their prime responsibility to educate their children irrespective of any other financial activities. Our Income Tax act allows the benevolent tax deduction for the tuition fee that you pay for two children. In simple terms, this expense gives you a very big tax relief provided that it is only for full-time courses and on fees paid to a recognized university, college, school or other educational institution in India. It includes also payment of fee towards pre-nursery, play school and nursery.

The other benefit of this is that since income tax act doesn’t bother that both husband and wife together have to claim this benefit, if you have a large family, you can claim deduction for two of your children, and your spouse can claim deduction for the third or fourth child, or both. The good news for the parent is that such a deduction is allowed for two children and the upper limit is Rs 1 lakh under section 80C. It must, however be noted here that deduction is not available for fees paid for private tuition, coaching classes. Also, there is no rebate on other charges paid to schools or colleges, in any form of development, transport, hostel, mess, library, and others any such manner.

  • Interest on higher education loan

In the competitive world, higher and quality education have now, become costly affair and hence it is inevitable perusing a personal goal of enrolling for higher education loan to fulfill such dreams. If you are taken your higher education loan, you can claim deduction on the entire interest paid for the first eight years or until the interest is fully paid, whichever comes earlier under section 80E of the Income Tax Act. The loan can be borrowed for yourself, spouse or children. But the loan should be taken from a bank or any financial institution or an approved charitable institution.

It is noteworthy that, here the term ‘higher education’ involves full-time studies for a graduate or post-graduate course in engineering, medicine, management; or for post-graduate course in applied sciences, or pure sciences, including mathematics and statistics. The vocational studies pursued after passing senior secondary is also included. However, no deduction is available for part-time courses.

  • Payment of Monthly House Rent

You may be paying the monthly rent for an accommodation and your employer may also be giving HRA benefit hence, you can be availed maximum exemption on your HRA received by employer subject to certain conditions. Even without getting any HRA benefit from employer, you can claim deduction on your paying monthly home rent subject to the extent of Rs2,000 per month under section 80GG. This section also applies on self-employed tax-payers who are paying the rent for accommodation.

Here is the good news for those taxpayers who live with parents and not owning any house in same location. You can also pay them rent to claim House Rent Allowance exemption provided that the same property should be registered in the name of your parent.   This technically makes your parents the landlords. Then one of your parents should declare it in his/her personal income-tax return to prevent litigation in future. However, you cannot claim rent paid to spouse even your spouse is single or co-owner of the property. Because, in the eyes of law, the relationship between a husband and wife is not commercial in nature and they are supposed to stay together. So the income-tax authorities will not accept any payment of rent to a spouse.

  • Annual Vacation Expenses

You may be fond of travelling with your family within country for a holiday. Income tax Act provides a tax concession if you have actually incurred expenditure on your travel fare anywhere in India either alone or along with your family members comprises your spouse, two children, parents, brothers and sisters who are mainly or wholly dependent on you. But such exemption is limited to the extent of actual expenses incurred i.e. you can claim exemption on the LTA amount OR the actual amount incurred, whichever is lower, provided that you must be getting LTA or LTC benefit from your employer. Here, you should not try to think you can outsmart the taxman by taking a circuitous route to reach your destination. Expenses can only be claimed for travel by the shortest possible route.

Though you have been getting the travel allowance in your salary every financial year, it can be claimed for only two journeys in a block of four calendar years, which are fixed. Currently, the block of four calendar years is from 2010 to 2013 i.e. from January 1, 2010 to December 31, 2013; the next block will be from 2014 to 2017 i.e. from January 1, 2014 to December 31, 2017.

  • Medical Treatment and Maintenance of Dependent

Health care costs and maintenance of any illness dependence constitute a significant part of our household expenses including their medical treatments. In the line of this context, if you have incurred any expenditure in the form medical treatment including nursing, training and rehabilitation for a handicapped “dependent” suffering from disability, then you would be entitled to get a deduction of a fixed sum of Rs 50,000 p.a. from your GTI irrespective of the expenditure incurred, if the impairment is at least 40%. Similarly, if the “dependent” is suffering from severe disability i.e. 80% of any disability, then you claim a higher deduction of fixed sum of Rs 1 lakh, from your GTI irrespective of the expenditure incurred under Section 80DD of the Income Tax Act.

Likewise, if you have incurred any expenditure on the treatment of a chronic illness for your “dependents”, then the expenditure so incurred, makes you eligible for another deduction under Section 80DDB of the Income Tax Act for Rs 40,000 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.

In all cases, it is noteworthy that over here the term “dependent” being a person with disability means your spouse, children, parents, brothers and sisters.

  • Donations to Charitable Trusts and any political parties

God fearing people regularly donate their money towards various humanitarian grounds. A donate to certain specified funds, charitable institutions, approved educational institutions etc. is also encouraged by giving the tax benefit on donations under section 80G. However, the deductions allowed can be 50% or 100% of the donation, subject to the stated limits as provided under this section. In same way, 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 the section 80GGC.

Tax Planning

Tax planning is an integral part of personal financial planning. The amount of scattered and incomprehensible information available in the market prevents people from becoming aware of the options available to maximize their income through tax savings. They are overwhelmed by the hard-to-understand information and simply shy away from learning about available options. They do not make simple efforts to understand and take control of their personal finances including income tax issues. But we believe that with some serious effort and knowledge, every taxpayer can save huge amounts of money and increase their annual income by investing their hard-earned money in tax-efficient schemes.

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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