Archit Gupta explains how can you maximise your savings and reduce your taxable income.
You have been working very hard to fulfill your financial requirements but, honestly, it does pinch when the government collects 30 per cent of your income as tax.
So let’s explore the options that can help you reduce the tax outgo and increase your savings, a part of which you can plough in as investments.
Investments in avenues prescribed under Section 80C
Section 80C is the most common tax saving avenue. Investments in funds covered under this section helps reduce the taxable income by ₹150,000.
The investments covered under this section include investment in Public Provident Fund or PPF, National Pension Scheme, National Savings Certificate, Unit Linked Insurance Plans, etc.
Medical cover for self and family
The premium paid on medical insurance is exempt from tax to the extent of ₹25,000 for self, spouse and dependent children.
If you are a senior citizen aged 60 years or more, you can claim a deduction of ₹30,000 as against ₹25,000. Incidentally, this limit of ₹30,000 has been increased to ₹50,000 in Budget 2018, applicable from FY 2018-19.
An additional deduction for insurance of parents is available to the extent of ₹25,000, if they are less than 60 years of age or ₹30,000 if parents are senior citizens aged 60 years and above.
This limit again has been increased to ₹50,000 in Budget 2018, applicable with effect from April 1, 2018.
Interest payment on availing an educational loan
Higher education is expensive and not everybody can afford it.
Therefore, people resort to taking loans from banks which come with high interest rates. However, the income tax laws do provide for a deduction of the entire interest paid in respect of such an educational loan taken.
While the interest can be claimed towards a loan taken for funding higher studies pursued in India or abroad, there are certain conditions attached to the deduction.
First and foremost, this loan should have been taken either for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian.
Secondly, though there is no monetary ceiling on the quantum of interest that can be claimed as deduction, such deduction is available for a maximum period of eight years or till the entire interest is repaid, whichever is earlier.
Being able to donate towards a cause you are passionate about is a good feeling, but saving tax on it is a bonus. There are various funds and institutions listed in the Income Tax Act, donations to which can save tax up to either 100 per cent or 50 per cent with or without restriction as provided in section 80G.
Also to note that from the financial year 2017-18, any donations made in cash exceeding ₹2,000 will not be allowed as deduction. The donations above ₹2,000 should be made via cheque or draft.
Buying a home
If you purchased a house with the help of a home loan, make it a point to claim tax benefits on it. Firstly, the interest paid on the home loan is allowed as a deduction to the extent of ₹2,00,000, subject to terms and conditions.
Additionally, if it is your first investment in a house property, you can claim an exemption of ₹50,000 on the home loan interest paid under Section 80EE.
It is important to note that to claim this deduction, the loan should have been sanctioned between the April 1, 2016, and March 31, 2017. Therefore, a maximum exemption of ₹2,50,000 can be claimed.
Reimbursements from your employer
If you belong to the salaried class of taxpayers, you can go ahead claiming some of your expenses reimbursed by your employer as a deduction subject to prescribed limits.
House Rent Allowance
If you are paying rent for your accommodations and HRA forms a part of your salary, you can claim a deduction. The amount of deduction will be the least of the following:
(i) Actual HRA received
(ii) 50 per cent of your salary (basic salary + DA) if living in metro cities or else 40 per cent
(iii) Excess of annual rent paid over 10 per cent of your salary (basic salary + DA)
If the employer does not provide HRA and you are paying rent, the alternative to claim a deduction is under section 80GG.
The least of the following will be allowed as deduction:
- ₹5,000 per month
- 25 per cent of adjusted total income
- Actual rent less 10 per cent of adjusted total income
Any reimbursement given by your employer for any medical expenditure incurred for yourself or your family can be claimed as an exemption upon submission of the bills to your employer. The upper limit for claiming deduction is Rs 15,000. This tax benefit can only be claimed via your employer.
If you receive a transport allowance from your employer, then you can claim up to ₹1,600 per month as exemption.
Here, it is pertinent to mention that medical reimbursement and transport allowance related exemptions have been done away with in Budget 2018 and a standard deduction of ₹40,000 from salary has been introduced with effect from April 1, 2018.
Illustration: Uttam Ghosh/Rediff.com
Archit Gupta is founder and CEO, ClearTax.com