These four expenditures can help you save tax under section 80C
January, 10th 2018
Most people are aware that they can save tax under section 80C by investing in notified schemes such as PPF, ELSS or insurance. However, you should be aware that there are certain expenditures that are permitted under section 80C of the Income Tax Act, 1961 which can help in saving tax too.
If you have incurred any of the below mentioned expenses in the current financial year i.e. FY 2017-18, then you can claim deduction for it up to a maximum of Rs 1.5 lakh. If the expenditure incurred totals Rs 1.5 lakh or more, then you need not make any investment to fully use the section 80C tax saving limit.
1. Tuition fees of children Do you know payments made by you as tuition fees for your children can be claimed as a deduction from your gross taxable income thereby reducing your tax payable? According to the Act, any tuition fees paid whether at the time of admission or thereafter to any university, college, school or other educational institution is eligible for this deduction.
However, only fees paid for studies pursued full time can be claimed as a deduction to save tax under this section. This also includes fees paid for any play school activities, pre-nursery and nursery classes.
In addition to that, any payment made as development fees or donation or payment of similar nature will not be taken as tuition fees.
The institution has to be situated in India but it can be either a government or private one. This benefit is restricted to two children only for each parent i.e. mother or father. The tax benefit will be available to the parent who has made the payment.
If a working couple has three children and father has made payment of school fees for one of them, then he can avail the benefit only for the payment made by him. The tax benefit for tuition fees paid for the other two children can be claimed by the mother if she has made the payment. Click here to read more.
Abhishek Soni, CEO of tax-filing website Tax2Win.in, says, "One must remember that this benefit is restricted to the children only. Any fees payment made for education of yourself or spouse is not available."
2. Home Loan Principal Repayment As a home loan buyer, section 80C can bring you relief as you are required to pay hefty equated monthly instalments (EMI). The EMI paid by you every month has two components: Principal and interest. The total amount of principal paid by you in a financial year (1 April to 31 March) can be claimed as a deduction from gross total income under section 80C before calculating the net taxable income.
This deduction can be claimed not just by individuals but also by Hindu Undivided Families (HUFs).
One can get a loan certificate from the lending bank's branch or go online. The certificate will show how much of the total EMI paid in a year was repayment of the principal amount borrowed.
In the initial years of loan repayment, the interest component of the EMIs is much more than the principal component. However, in later years the principal repayment component of the EMIs becomes much larger. Payment of interest on loan can also be claimed as a deduction from gross total income under section 24 and section 80EE subject to certain conditions.
However, there are certain conditions that an assessee must fulfil to be eligible to claim the deduction. Soni says, "This deduction is available only in case of purchase or construction of the house. Any loan taken for the purpose of repairs or alteration or addition to the house is not eligible for the deduction if completion certificate has been issued for the same or if the house is occupied by the user or let out."
The house property should not be sold within 5 years from the end of the financial year in which possession of such property is obtained otherwise the deduction claimed earlier will be added back to your income in the year of sale.
3. Certain payments for the purchase/construction of residential house property If you have bought a house, then there are certain charges that are required to be paid apart from the cost of house. According to the Income Tax Act, any stamp duty, registration fee and other expenses incurred for the purpose of buying a house is eligible for deduction from gross total income in the financial year in which these expenses are incurred. Here, 'other expenses' include any other statutory expenses similar to stamp duty or registration charges (if any applicable on transfer of property).
It is to be noted that it does not matter whether an individual has taken loan or not to acquire the property.
Chetan Chandak, Head of Tax Research, H&R Block, India says, "Here one must remember that any fees or deposit made to become a member of the co-operative society is not allowed as deduction."
4. Payment to development authority, housing board or other authority for the purchase of house If you have bought a house under the instalment finance scheme from a development authority such as the Delhi Development Authority (DDA) and are paying the instalment to DDA then any amount paid towards principal repayment can also be claimed as deduction u/s 80C adds Chandak.