SEBI registered Investment advisor (RIA) with Registration number – INA 000000342.
Little known ways to reduce your tax burden

Everybody knows that life insurance premium and PPF and Equity Linked Mutual funds will help you in reducing your tax liability. But are you aware of the fact that, even the stamp duty and the registration charges while buying a house can reduce your tax burden.

Yes, in the year of purchase, you can claim these expenses under section 80C. Let us discuss some other tax saving tips.

School fee for children and interest on educational loan.

Tuition fee paid to school can be claimed under Sec. 80C. But donation and capitation fee paid for admission etc. will not qualify for deduction.

 Under Sec.80E, the interest paid on educational loan (taken for a course after +2 or equivalent) can be deducted fully from the taxable income. This is applicable for loan for self, spouse or children. This deduction is available to you even to support the education of a relative provided you are the legal guardian. The deduction is allowed for a maximum period of 8 years starting from the year in which the interest is first repaid.

Health Insurance premium for your family & for parents

It is better to have a separate medical insurance policy for you and family in addition to the cover provided by your employer. When you take a policy, premium upto 15000/- pa can be deducted from your taxable income. Another deduction of 15000/- is available for taking a health insurance policy for your parents. This will be 20,000 if either of your parents is a senior citizen.

Expenses on special dependants (80 DD and 80DDB)

A deduction upto 50,000 pa is allowed under Sec. 80DD, if any of your dependents suffer from a physical or mental disability. Dependants include spouse, children, parents, brothers and sisters. The amount is 1 Lakh, if the disability is 80% or more. To get this benefit, you should get a certificate in the prescribed form from a government doctor and submit to your employer.

This benefit is for the expenditure incurred by way of medical treatment (including nursing), training and rehabilitation of a handicapped dependent. This can also be claimed if you are taking policy like Jeevan Adhar of LIC for the maintenance of handicapped dependant.

If you have a dependent, who suffers from an ailment specified under Section 80 DDB, you can claim a deduction upto 40,000 in a year. This is 60,000 if the patient is senior citizen. If you get any reimbursement for this treatment from your employer or from an insurance policy, the benefit under 80DDB will be available, for the amount, you actually spend over and above the reimbursement.

Home Loan & Joint home loan

You are aware that the home loan principal repayment upto 1lakh pa is eligible for deduction under Sec. 80C and the interest payable upto 1.5 Lakh pa is deductable under Sec.24 of the IT Act.

But in the case of properties which are not self occupied there is no upper limit. You can claim deduction for the actual interest paid.

You cannot claim interest deduction, when the flat is under construction. But the interest paid during this period can be claimed as deduction in 5 equal instalments starting from the financial year, in which the construction is completed.

In the case of joint loan, where the share of each owner is mentioned, each owner is eligible to claim these benefits in the ratio of their ownership.

Paying rent to your parents

If you are staying in your parent’s house, you can enter into an agreement and pay rent to them, preferably by cheque. You will get tax benefit from your employer depending on your basic pay and HRA. Of course, your parents have to account this rental income as their income. But if they fall in the lower tax brackets, it will help save tax. Normally, after retirement, they will be in the lower IT slab.

Stay in a rented flat with own flat in another location.

If you are staying in a rented house in a city and if you are having a housing loan for a property in another city, you can claim the HRA benefits from your employer and the tax benefits under sec. 80C and Sec. 24 for the housing loan.

Charity helps you too

Donations upto 10% of your income can be deductable under sec. 80G. Depending on the institution to which the donation is made, you will get 50% or 100% exemption. Don’t forget to collect the receipt for donation.

If you are not getting HRA

Even if you are not getting HRA, as part of your salary or if you are self employed professional or business man, under Section 80 GG, you can claim deduction for the rent paid. You can claim the least of the following:

a)    Rent paid – 10% of the total income, b) 25% of the total income c) Rs.2000/- per month.

These rules may change once the Direct Tax Code is in place instead of the current IT Act.

7 Comments

  • premjitpv Posted December 12, 2011 7:54 am

    Good article.
    If one have an apartment jointly owned by his spouse,can he claim benefit if paying rent to his spouse?

    • admin Posted December 12, 2011 6:10 pm

      IT department will not allow this, because spouse is also a co owner here.

      • premjit Posted December 12, 2011 7:08 pm

        thank you for your reply

        regards
        premjit

  • PARAG DESAI Posted December 18, 2011 10:43 am

    Very helpful article.

    We have taken a home loan in the name of wife(Primary) & i as ‘co-applicant’.
    Can i get tax benefit deduction under Sec. 80C ?

    • admin Posted December 19, 2011 3:42 pm

      Yes,as per the percentage of ownership. Limited to 1 Lakhs including all other permissible deductions.

  • Anup Posted December 19, 2011 1:43 pm

    5 years before , I took a Pension Plan from one of the Insurance Companies. I’m planning to discontinue the policy and also planning to withdraw the money.
    I’m planning to take a new Pension /ULIP policy.

    My Questions:

    1)The withdrawn money is it taxable?

    2)Is it a correct decision to discontinue the policy?

    Please Answer

    • admin Posted December 19, 2011 3:40 pm

      Surrender values of pension policies are taxable. There were some policies earlier, which is not taxable.But new generation policies are taxable. You have to see the exact wordings given in the policy bond to confirm the same.
      Going for a new pension/ULIP will not be a good idea, because of the huge charges etc. In that case, it is better to continue the existing policy, after reviewing the fund performance.

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