Various tax deductions are allowed under the Income Tax Act if the taxpayer makes investments in eligible tax-saving instruments. However, in some cases, the taxpayer can claim tax exemptions even if he has not made any investments.
Let’s see the five ways through which you can save maximum taxes:
1) House Rent Allowance
Employees claiming HRA allowance and living in a rented house can save tax by claiming HRA allowance exemption under the Income Tax Act. The HRA allowance is either fully exempt or partially exempt under Section 10. To know the amount of exemption, calculate-
- 50% of salary (basic salary and dearness allowance) for those living in metro cities, and 40% of salary for non-metros cities,
- Actual rent paid more than 10% of salary (basic salary and dearness allowance).
The lowest of these amounts calculated will be the exempt amount from tax.
If you stay with your parents and receive HRA from your employer, you can claim the HRA exemption by paying monthly rent to your parents.
2) Education loan
Another tax-saving idea without investment is claiming the deduction for interest paid on the education loan. Section 80E allows deduction of interest paid on education loans availed from a financial institution. You can claim the deduction from the gross total income, reducing the taxable income. The loan should be taken for higher education, i.e., any course after passing the Senior Secondary Examination or equivalent, in India or abroad. You can avail of it for 8 consecutive years, beginning from the year you start paying the interest. The education loan for which deduction is allowed can be taken for the education of self, spouse, children or a student you are a legal guardian to.
3) Housing loan
The Income Tax Act allows the deduction under Section 24 (b) for interest on the loan for the purchase/construction of a house property. A deduction of Rs 2 lakh is allowed for a self-occupied residential property. There will be a loss under the head ‘income from house property’ by taking the deduction for the self-occupied property. Such loss can be adjusted with the other income heads during the year. However, the deduction amount shall be Rs 30,000 instead of Rs 2 lakh,
(i) If the new property is not constructed within five years from the end of the financial year in which the loan is taken
(ii) In case the loan availed is for reconstruction, repairs or renewals of the self-occupied residential property
For let-out/ rented property, actual interest incurred on loan availed for acquisition, construction, repairing, re-construction shall be allowed as deduction.
Pre-construction Interest or Interest of the period before the year of acquisition/construction of the house property shall be allowed as a deduction in five equal instalments, beginning from the year the property was first constructed.
Moreover, you can also claim a deduction for interest payments under Section 80EE and 80EEA, subject to specified conditions. It is in addition to the deduction of Rs 2 lakh provided under Section 24 of the Income Tax Act. You can avail maximum benefit of these deductions. However, the deductible limit of Rs 2 lakh under Section 24 should be exhausted first.
After that, you can claim the additional benefits under Section 80EE/80EEA. Therefore, taxpayers can claim a total deduction of Rs 3.5 lakh for interest on the home loan if they meet Section 80EEA conditions.
If the conditions specified in Section 80EE are satisfied, you can claim the total deduction of Rs 2.5 lakh.
4) Medical expenses for senior citizen parents
Section 80D allows a deduction for health insurance premiums paid for self and family members. If you have paid the health insurance premium for self, spouse or dependent children, you can deduct Rs 25,000. Further, an additional deduction of up to Rs 25,000 is allowed on claiming the medical insurance premium paid for parents aged above 60 years. The deduction is also for buying a Covid-specific health insurance policy like Corona-Kavach. Moreover, where the insured is a senior citizen, the deduction limit is extended to Rs 50,000.
Moreover, for a senior citizen, who does not have medical insurance, medical expenses can be claimed as a deduction under Section 80D subject to an overall limit of Rs 50,000. Similarly, a separate deduction of up to Rs 50,000 is allowed for medical expenses incurred for the senior citizen parents.
This section also allows for deduction towards preventive health check-up expenditure up to Rs 5,000. The expenditure amount is included in the overall limit, as applicable. The above expenses must be incurred by any mode other than cash. However, preventive health check-up expenses are allowed if paid in cash.
5) Children’s tuition fees, education allowance and hostel allowance and tuition fees
Any allowance (up to specified limits) for the children’s education (children allowance) as well as hostel expenditure (hostel allowance) provided to an employee by their employer is allowed as an exemption under Section 10. The exemption is restricted up to Rs 1,200 annually for children’s education allowance and up to Rs 3,600 annually for hostel expenditure allowance, but up to a maximum of two children.
Further, tuition fees paid to any recognised college, school, or other educational institution situated in India for the full-time education of any two children are allowed as a deduction under section 80C. Any taxpayer (salaried and non-salaried) can claim this deduction if the tuition fee described above is paid for their children. However, only the tuition fee component can be claimed under Section 80C.
Further, no deduction is available if payment is made to any foreign educational institution. It is also important to note that children’s education allowance differs from tuition fees. Children’s education allowance deduction is allowed only if it forms part of the salary component and the taxpayer has incurred expenses for his children’s education up to Rs 1,200. However, in the case of tuition fees, it is allowable based on actual expenditure incurred for children’s education to the extent of Rs 1.5 lakh under section 80C, even though it does not form part of the taxpayer’s salary.
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