Expenses That Help You Save More Taxes

Hello Gruhinis

Its February!  I know you are fretting about taxes.

Breath and Behold!

You DON’T have to always INVEST more money to save taxes.

There are certain expenses or payments that can help you reduce your taxable income.

According to the Income Tax Rules, during a financial year, if you made certain payments or incurred expenses, upon submitting valid proofs, you can claim it as a deduction under Chapter VI-A of the Income Tax Act. It’s a deduction as it reduces your total income on which you pay taxes. Such deductions are covered under Section 80C to 80U.

Here is the list of deductions eligible under Section 80C.

Who can avail of deductions

  • Individual Assessee (salaried individuals) or a Hindu Undivided Family
  • Self-employed professionals and small business owners (those who pay taxes as per Section 44AD or 44ADA of the Income Tax Act.)

A)  School Tuition fees: Only tuition fees paid for a full-time course in a university, college, school, or any other educational institution in India. Fees paid for part-time courses will not qualify for deduction here.

Point to Note:

  • Tuition fees should have been paid for the assessee’s own, step or adopted children.
  • Only tuition or term fees of schools or college education institution is allowed. No other payment such as transport fees, uniform, or library facility fees is eligible for deduction under this head.
  • Each assessee can avail of this deduction for up to two children. So, a couple can claim a deduction for a maximum of 4 children.

If your kids are going to schools in metro cities, this expense can cover a lot of your 80-C limit. With offline mode in full swing, schools may look forward to a fee hike as well.

B) Home loan principal repayment during a financial year

Conditions to avail of deduction:

  • The construction of the home should be completed to avail of the deduction
  • The said house cannot be transferred or sold within 5 years of its possession
  • If sold within 5 years, all prior deductions for principal repayment will be included as income in the year of sale.
  • If there is joint ownership in a home and a joint loan is taken, each person can take a deduction in proportion to their ownership share in the home

C) Certain expenses incurred on the purchase of new home-stamp duty, registration fees & transfer expenses

D) Your Contribution to Employee Provident Fund: Run through your salary slip to check the amount of your (not the employer’s) contribution towards EPF, being deducted on monthly basis. Your annual contribution to EPF along with tuition fees can also exhaust your deduction limit of Rs 1.5 lakh under Section 80C

E)  Life cover premium for self, spouse & dependent children: Premium paid on a life insurance policy (including endowment, unit-linked insurance plans) is eligible for deduction. The premium amount up-to 10% of the sum assured of a policy will only be considered for such deduction. If you plan to buy a new life cover, make sure the premium amount doesn’t exceed 10% of the sum assured (SA) of the policy.

Point to Note: Unlike health premiums which can be paid for dependent parents, life insurance premium deduction is only available only for the above-mentioned relations.

GruhiniGyan: Amongst various life insurance policies that are eligible for the deduction, pure-term life cover is the cheapest way to insure against loss of life.  It is like a life jacket that every earning individual must have. Even if your income is below Rs 2.5 lakh, you must buy a term life insurance cover.

F). House rent paid by specified individuals: Section 80GG of the Income Tax Act says if you are a self-employed or a salaried individual who doesn’t get any HRA from your employer and stay in a rented accommodation, the rent so paid will be allowed as a deduction based on the following criteria. The deduction shall be the least of the following:

  1.  Excess of rent paid over 10% of ‘Total Income’
  2. 25% of the ‘Total Income’
  3. Rs. 5,000 per month

Payments allowed as deductions under other heads

A)  Medical Insurance Premium u/s 80D: If you paid medical insurance premiums by modes other than cash, then such premiums if paid for -:

Yourself or your spouse

Dependent children

Parents, whether dependent or not

Will be eligible for deduction from your gross total income. The amount of deduction will depend on your and your parents’ age.

  • If you and your parents are below 60 years, then a total premium amount of Rs 50,000 is allowed. In this case, if parents are above 60, then the deduction goes up to Rs 75,000 (Rs 25000 for you, Rs 50,000 for parents)
  • If you and your parents are above 60 years, then a total premium amount of Rs 100,000 is allowed as deduction.

B). Interest on a loan for higher education: The interest paid on a loan taken for pursuing education after the senior secondary examination, is eligible for deduction under Section 80E of the Income Tax Act. This deduction is available only to individuals.

Point to Note:

  • This loan can be taken for self, spouse, or children’s higher education
  • The loan should be availed from a financial institution, bank or approved charitable institution
  • The person who is paying the loan EMI is entitled to this deduction.
  • The deduction of interest is allowed for the initial first year and 7 successive years.

Hope this expenses summary helps you make wiser decisions this tax season. If you liked this article, do share it extensively.

For your feedback and suggestions, do write back to us at rachna@thegreatgruhini.com

Invest, Rest, Live Life with a Zest. 

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1 Comment

  • Avatar
    sanyam jain
    2 June , 3:12 pm

    You have pointed out few goods tax savings scheme but left the best one that is PPF. One of the best long term tax saving scheme which every one should have.

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