Cut your tax bill through deductions

Position of deduction while computing total income

March is approaching. Everyone is worried about his tax liability. In the following paragraph we are discussing certain deductions available to us for reducing our tax liability. These deductions reduces our gross total income for the year and in turn it will also reduce our tax bill for the year.

Deduction u/s 80C

When we are talking about deduction, firstly, we thought about deduction u/s 80C of the Income-tax Act. For getting benefits under this section you are required to make specified investment. By doing so, you are getting double benefit viz.

  • Benefit in the form of return from investment like interest, etc.
  • Benefit by way of reduction in your tax bill.

Few of investment which are eligible for these benefits are:

  • Payment of life insurance premium for yourself, spouse and your children.  Be careful, premium amount should not exceed 10% (or in some cases 20%) of the sum assured.
  • Investment in Public Provident Fund. The fund fetches interest which is more or less equal to return on Fixed Deposit with bank. The investment amount will reduce your taxable income and interest yield on such investment is also tax free. But lock in period for investment is 15 years, though you may take loan after 7 years. Further, investment in Recognized Provident Fund (RPF) and Statutory Provident Fund (SPF) is also eligible for deduction
  • Investment in Tax saving Fixed Deposits with banks or post offices. Interest income on these FD is taxable. The lock in period for tax saving FD is 5 years.
  • Investment in Mutual Fund specified as Equity Linked Saving Scheme. If you are not satisfied with rate of interest on fixed deposit and ready to take risk against more return then this is best choice. Lock in period for the investment is 3 years.
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Moreover, certain expenses incurred by you during the year is also eligible for deduction. Few of them are:

  • Repayment of home loan taken from banks, etc.
  • Stamp duty or registration fees paid for acquisition of house property
  • Tuition fees paid to any school or college or any other educational institute for your children. Be careful while considering this, admission fees, donation or private tuition fees is not eligible for deduction.

The maximum deduction available under this section is 1,50,000/- i.e., means you can save upto ₹ 53,300/- (if you are in maximum bracket)

The benefit is not available from short term capital gain on shares or equity funds (on which tax is calculated @ 15%) and any long term capital gain.

Deduction u/s 80D in respect of medical insurance

This is best bet! It will not only reduce your tax bill but also supports you financially when you are in medical emergency. Medical insurance premium paid on the health of yourself, your spouse and dependent children is eligible for deduction from gross total income. It should be noted that payment should be made through any mode other than cash. Further, payment made for preventive health check up, even in cash, is also eligible for deduction with the cap of ₹ 5,000. However, the overall cap for deduction is ₹ 25,000. If insured person is a senior citizen or a super senior citizen, then the cap is ₹ 30,000/-

Not only that similar benefit is also available for medical insurance premium paid for health of parents or health check up of them. A separate cap for parents is ₹ 25,000 (₹ 30,000 in case person insured is senior citizen or super senior citizen).

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Thus, you can reduce taxable income by 60,000 through medical insurance alongwith mental peace. 

Deduction of interest on saving account u/s 80TTA

All of us have saving account (either in bank or post office) and sometimes, surprisingly, get some petty credit in the same as saving deposit interest. That petty amount is taxable under the head ‘Income from Other Sources’. However, the said interest upto 10,000 is deductible u/s 80TTA. 

Further, it is to be noted that interest on Post Office Saving Bank (not bank) is exempt u/s 10(15) to the extent of ₹ 3,500 (in case of single account and ₹ 7,000 in case of joint account). The deduction u/s 80TTA is over and above these exemption.

Deduction u/s 80GG for payment of house rent

If you are living in a rented house and not receiving house rent allowance from your employer then you are eligible for deduction u/s 80GG subject to certain restriction like

  • you (alongwith your spose or minor child) don’t have any house at the place of your employment
  • you are not claiming any house property (at any place) as self occupied property
  • you have valid proof of payment of rent

If you are satisfying all of the above then you are eligible for deduction u/s 80GG which is lower of the following amount:

  1. 5,000 per month
  2. 25% of adjusted gross total income
  3. Rent paid over 10% of adjusted gross total income

Adjusted gross total income means gross total income excluding long term capital gain and short term capital gain which is taxable @ 15% and after reducing all other available deduction to you.

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Deduction u/s 80U, 80DD and 80DDB

Don’t forget to consider following deduction:

if you are handicapped, then you are eligible for deduction of  75,000 ( 1,25,000 in case of severe disability) u/s 80U

If your dependent relative (being spouse, children, parents, brothers and sisters) is disable and you are maintaining them then you are eligible for deduction of ₹ 75,000 (₹ 1,25,000 in case of severe disability) u/s 80DD

If you have paid any amount for medical treatment of a specified disease, then you are eligible for deduction u/s 80DDB to the extent of such expenses subject to cap of  40,000 (in case if such expenditure is incurred for senior citizen then the cap is  60,000/- and if such person is super senior citizen, then the cap is  80,000). Such expenses may be incurred for the treatment of yourself, or any of your dependent relative (i.e., spouse, children, parents, brothers and sisters)

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