Eleven Income Tax Saving options beyond 80C

As we reach in the last quarter of the financial year, HR departments of the companies start asking for tax saving declarations. Hence we rush to find out various avenues to save tax, the first option comes under section 80C where the limit of Rs. 1.50 lakh is available for each individual. This includes investments in life insurance premium, employee's contribution towards EPF (Employee Provident Fund), PPF (Public Provident Fund), ELSS Mutual Funds, Children's tuition fees, Pension Plans, Principal Repayment on home loans and a host of other investment options.

Generally most of us know about this and exhaust this limit Rs. 1.5 lakh. If have invested more under these options we won’t get any additional benefits. So what are the other options wherein we can invest and reduce our tax burden further, let’s find it out:

1. New Pension Scheme

New Pension Scheme provides an additional income tax deduction of Rs. 50,000 under Section 80CCD. This extra deduction of Rs. 50,000 on NPS increases the total deduction allowed under Section 80C and 80CCD to Rs. 2 lakh. Now government has allowed the withdrawal of 60% totally tax-free which makes it further attractive to reduce tax burden and save for our future.

2.  NPS investment made through Employer

We can save further under NPS if investments are made under corporate model. Under the NPS corporate model, an employee can deposit the contribution directly or route the contribution through the employer he or she is working with. Employer's contribution to NPS up to 10 per cent of basic salary (plus DA) is allowed deduction under Section 80CCD (2). There is no cap for this deduction but the total deduction claimed for contribution by the employer should not exceed 10 per cent of the salary.

3. Deduction of Housing Loan interest

If we have purchased a home by taking loan, we get exemption up to Rs. 2 lakhs under Section 24B of the Income Tax Act. If the purchased property is put on rent then, the borrower can only claim deduction of up to Rs. 2 lakh per year after adjusting for the rental income. And the amount above Rs. 2 lakh can be carried forward for eight assessment years.

4. Additional Deduction for first time home buyer

There is additional benefits to those persons who are buying a house for the first time (the person must not own any other residential property on the date of sanction of loan). An additional deduction of Rs. 50,000 is available under Section 80EE, over and above the limit of Section 24B on interest paid on home loans.

5. Deduction for Education Loan

A taxpayer can claim deduction for interest paid on education loan under Section 80E of Income tax. This deduction is available for self, spouse or children. There is no upper limit on the amount of deduction.

6. Mediclaim deduction for self, family and Parents

An individual can claim deduction of up to Rs. 25,000, if he or she is below 60 years of age, and Rs. 50,000 if above 60 years of age, towards medical insurance premium paid for self, spouse and children under Section 80D of Income Tax Act. Additional deduction of Rs. 25,000 is available if one has bought medical insurance for his parents. This deduction can go up to Rs. 50,000 if parents are above the age of 60.

7. Deductions for differently-abled

Government has provided extra deduction for differently-abled people under Section 80DD of IT Act. If an individual has dependants who are differently-abled, he or she can claim additional deductions up to Rs. 75,000 for expenses on their maintenance and medical treatment under this section. This deduction can increase to Rs. 1.25 lakh in case of severe disability.

8. Deduction under specific diseases

For certain critical diseases, an individual can claim additional deduction of up to Rs. 40,000 under Section 80DDB of IT Act, for treatment of certain diseases for self and dependants. The deduction can go up to Rs. 60,000 if the taxpayer is above 60 years and up to Rs. 80,000 if above 80 years.

9. Exemption for HRA

HRA stands for House Rent Allowance.

It is taxable under the IT Act subject to specified exemption limits. 

If you do one of the following then your HRA is fully taxable, not exempt if you:

       i.          Reside in your own house; or

      ii.          Do not pay rent for house occupied by you.

However, if you are living in a rented house and paying the rent, then HRA exemption can be availed for the period during which you occupy the rented house during the relevant tax year. 

Also, to claim the exemption, your employer is required to obtain appropriate and adequate proof of payment of rent for the entire period for which you want to claim exemption. 

An exception to the 'proof required' HRA rule is that, if you are a salaried employee drawing HRA up to Rs. 3,000 per month, you do not have to provide a rent receipt to your employer.

The maximum amount that can be claimed as an exemption under HRA is the least of

       i.      Actual HRA; or

      ii.      Rent paid in excess of 10% of basic salary + Dearness Allowance

             (DA) if in terms of service; or

     iii.     50% of basic salary + DA in case of Chennai, Delhi, Kolkata, Mumbai

             or 40% of salary + DA in case of other cities

10. Exemption for Rent payment

If you don't receive HRA from employer and make payments towards rent, you can claim deduction under section 80GG towards rent that you pay. The deduction is lowest of the following:

(a) Rs. 5,000 per month

or (b) 25% of total income

or (c) Rent paid less 10% of income

11. Donations for Charity

If you contribute to the society you will get some tax benefits also. Government allows, under Section 80G of Income tax up to either 50 per cent or 100 per cent deduction for the donations to charitable organisations subject to overall highest deduction allowed is capped at 10 per cent of the donor's total income.