SOME LESSER-KNOWN INCOME TAX DEDUCTIONS- YOU SHOULD KNOW
Dear Friends,
We are in the last quarter of FY 2023-24 and your employer has asked you to submit your investment proof to claim tax benefits. We are well familiar with the provisions of Sections 80C-80U, Section 24 and other provisions of the Income Tax Act, 1961 ,which provide us various types of exemptions /deductions from our taxable income. Proper utilization of these provisions and investment planned earlier provides us great relief during this time. Some people start their planning at the last moment or in the last month of the financial year. These types of planning will not assist them.
These are some lesser-known deductions available to taxpayers , which you should know and utilize the same for more tax saving.
LET’S DISCUSS
- Deduction for pre-nursery
One can claim tax break for expenses related to playgroup, pre-nursery, and nursery fees paid for their children. Although introduced in 2015, this tax benefit is not as widely recognized as the deduction available for school tuition fees.
- Section: 80C
- Maximum permissible deduction: Rs 1.5 lakh
- Watch out: Benefits restricted to two children.
- Re-invest PPF money to save tax.
Tap your Public Provident Fund (PPF) account for this year’s tax-saving investments. You can make partial withdrawal from your PPF account from the seventh financial year.
- Section: 80C
- Extent of withdrawal permitted: Loan facility is available from the fourth year and withdrawal facility is available from 7th year under the PPF scheme.
- Watch out: Given the restriction of only one partial withdrawal per financial year, initiating the tax-planning process early and accurately estimating the required amount will be beneficial for you.
- Stamp duty can save tax.
Optimize your tax benefits by claiming a tax deduction on stamp duty and registration fees while buying a house. This is especially beneficial for individuals availing a home loan towards the end of the financial year, considering that the principal component is relatively lower in the initial years.
- Section: 80C
- Maximum permissible deduction: Rs 1.5 lakh
- Watch out: Make sure to secure the deduction in the financial year of the property purchase since it cannot be availed at a later time.
- Pay interest to parents.
Consider paying interest on a loan from your parents to fund the house purchase. It’s essential to note that the deduction allowed on home loan interest is not exclusive to loans from banks or housing finance companies. This strategy can be particularly advantageous if your parents fall in the lower tax brackets.
- Section: 24(b)
- Maximum permissible deduction: Rs 2 lakh
- Watch out: Ensure that you pay interest on loans from parents and don’t forget to collect a certificate attesting to the interest payment.
5. Rent to parent’s cuts tax.
If you reside in a house owned by your parents, consider paying them rent and documenting the transactions. By doing so, you become eligible for the House Rent Allowance (HRA) exemption.
Added to this, your parents can benefit from standard deduction and deductions on municipal taxes paid, leading to overall savings for the entire family.
- Section: 10(13A)
- Maximum permissible deduction: Actual HRA received or excess rent paid over 10% of salary or 50% of the basic salary (40% if you live in a nonmetro), whichever is lower.
- Watch out: Formalize the landlord-tenant arrangement by getting a lawyer to create a comprehensive rent agreement, outlining the specific details of rent payments. To safeguard against potential rejection of the exemption in the future, diligently submit rent receipts as evidence of the transaction. This ensures clarity and legality in the landlord-tenant relationship.
6. Tax break for group health insurance cover.
Take advantage of the tax break available on group health insurance premiums that you pay. If you’re covering yourself, your spouse, children, and parents under a group health insurance plan purchased through your employer, remember that you are entitled to deductions similar to those applicable to independent retail health covers.
- Section: 80D
- Maximum permissible deduction: Rs 75,000 (Total cap on tax benefits, assuming the tax-payer’s age is less than 60 years and parents are senior citizens)
- Watch out: If your employer has funded the entire premium, you cannot stake a claim on the tax benefits.
PLEASE NOTE: in this case you are eligible to claim only that portion of Insurance Expense in Section 80D which you have paid. If all premium is paid by your employer and you have to nothing to pay ,in this case you cannot claim deduction u/s. 80D. Suppose you have given premium of Rs. 8000/- for adding your parents in employer’s group insurance policy , then you are eligible to claim only Rs. 8000/.
7. Parents’ treatment eligible.
You can fund your parents’ medical expenses. It is common for elderly parents (aged 60 and above) to incur recurring expenditure on medicines; if you finance these expenses, you will be allowed tax breaks akin to health insurance premiums.
- Section: 80D
- Maximum permissible deduction: Rs 50,000
- Watch out: This expense will not be allowed as a tax break if they are covered by a health insurance policy.
PLEASE NOTE THAT: For the welfare of senior citizens (Resident + aged 60 or above) who don’t have health insurance, a deduction up to Rs. 50,000 can be claimed for the medical expenses incurred for them. However, if they already have health insurance and have made payments to keep it active, they won’t be eligible for this deduction.
Example: If you incurred Rs 65,000 for the medical expenses of your senior parents, you may claim Rs 50,000 as deduction although they don’t have a health insurance policy.
CONCLUSION: these deductions are lesser known to the taxpayers. You can save tax or reduce your tax liability by utilizing these deductions. Please note that payment of applicable tax is our duty, and the government has provided you with various types of deductions and exemptions to reduce your tax liability.
DISCLAIMER: the article presented here is only for sharing knowledge and information with readers. The views expressed are personal ,shall not be considered as advice. In case of necessity do consult with professionals.
AUTHOUR: FCS Deepak P. Singh [ B.Sc. FCS, LLB, AIII, CIAFP]/cs.deepakpsingh@gmail.com
