When people start their career journey and get their first job, they more or less do not care much about tax saving since the salary is low. However, as one gets promoted, the salary goes up and so does the tax liability. This is when tax-planning becomes important because if they do not invest in tax-saving instruments, their tax outgo is higher and they are not able to save much.
Sometimes, when people see their salary statement and the amount of tax being cut, they realize the importance of effective tax planning and start looking at tax-saving options. A majority of people invest in instruments eligible for tax deduction under Section 80C of the Income Tax Act. Many stop any further tax-saving investment after claiming deduction under Section 80C. Most of us fail to take advantage of some lesser-known tax saving avenues available.
Here are some lesser-known tax-saving tricks:
1. Additional tax saving under Section 80CCD (1B):
Every year, taxpayers can claim a deduction up to Rs 1.5 lakh under Section 80C by contributing to the National Pension System or NPS. However, not many know that there is an additional deduction of Rs 50,000 which is available to NPS subscribers under Section 80CCD (1B). The additional deduction of Rs 50,000 allowed for investment in NPS is over and above this limit of Rs 1.5 lakh. This means, if you fall under the 30 per cent tax bracket, you can reduce your tax amount by Rs 15,600 by investing in NPS.
2. Tax benefit on Health Insurance premium:
In the current scenario, health insurance is a necessity rather than an option. Healthcare costs have gone up significantly in the last few years and if you do not have a health insurance cover, then a medical emergency can adversely affect your financial health. Sometimes, people end up exhausting a majority of their savings due to situations like this. Health insurance policies come with certain tax benefits.
A policyholder can claim tax benefits under Section 80D for the premium amount paid for the health cover and the benefits can be claimed for – a standard health insurance policy, health insurance riders and also top-up health cover. One can claim tax deduction for preventive health check-ups it is within the limits of the health cover. Under Section 80D, the deduction limit depends on the age of the insured and family members covered under the policy. As per the taxpayer’s family situation, deduction limit can be Rs 25,000, Rs 50,000, Rs 75,000 or Rs 1,00,000.
3. Tax benefits under Section 80DD:
Under section 80DD of the Income-tax Act, if an assessee, being an individual or a Hindu undivided family, who is a resident in India, has incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability, can claim tax deduction.
Tax deduction can also be claimed if the assessee has paid or deposited any amount under a scheme framed in this behalf by the Life Insurance Corporation (LIC) or any other insurer or the Administrator or the specified company approved by the Board for the maintenance of a dependant, being a person with a disability. Under this section, a disabled dependent can be – wife, children, parents and siblings. In Hindu Undivided Family (HUF), it can be any member of the family.
To claim benefits under this section, it is necessary to ensure that the disabled dependent has not claimed deduction under section 80U. Disabilities covered under the section include Blindness, Low vision, Loco-motor disability, Hearing impairment, Mental retardation, Mental illness, Autism and Cerebral palsy. Note that the amount of deduction is dependent on the seriousness of the condition. If the disability is up to 40 per cent, the taxpayer can claim deductions up to Rs 75,000. If a person is at least 80 per cent disabled, then the taxpayer can claim a deduction up to Rs 1,25,000
4. Tax benefit on Education Loan:
The tax benefit on education loan under Section 80E can only be claimed by the person who has taken the loan even if he is not the actual beneficiary. If your father has taken an education loan for your studies, then the tax benefit can only be claimed by your father and not you. Similarly, if the loan is in your name, your father can not claim tax benefit on the interest paid even if he pays the interest from his taxable income. If both of you repay the loan from your taxable income, then also your father can only claim the tax benefit as the loan is against his name.
All education loans do not qualify for tax benefit. Only loans taken from banks and specified financial institutions notified by the tax department qualify for tax benefit. The tax benefit is available only on the interest amount and not on the principal repayment part. Unlike home loan where the capital repayment to the extent of Rs 1.5 lakh in a year qualify for tax benefit under Section 80C, no tax deduction is given on principal repayment of an education loan. This benefit can be availed from the first year of the repayment till the eighth year or till the time repayment is complete, whichever is earlier.
5. Tax Saving on Saving Bank Interest:
A lot of people park their money in savings account and earn interest on that. Every individual and HUF can claim a tax deduction on this interest earned. Taxpayers, who are not senior citizens, can claim deductions under Section 80TTA and senior citizens can claim deduction under Section 80TTB.
The maximum deduction limit under this section 80TTA is Rs 10,000 meaning you can claim deduction on the interest earned up to Rs 10,000. If you have several savings accounts, interest earned from all the accounts will be clubbed together. The excess amount will be considered as income from other sources and that money will be taxable. Under Section 80TTB, senior citizens, who have parked their money in saving bank accounts deposits, can claim tax deduction up to Rs 50,000