Come the New Year and most of us head to visit our Chartered Accountants and Financial Advisors, trying to figure out ways to save on taxes. This usually results in rash decisions, major investments and an eventual loss of money or an expense incurred that wasn’t desired by you. But, there’s a better way to save taxes while making smart financial decisions. We’ve come up with a list of deductions that you can claim and not worry too much about your investment decisions!
EPF (Employees’ Provident Fund)/VPF (Voluntary Provident Fund) Deduction U/S 80C
A deduction that your company handles for you, EPF and VPF are deducted on a monthly basis from your salary and are counted in your contribution towards EPF. The total annual contribution amount can be claimed by you as a deduction while computing your income.
With this deduction, however, also comes the burden of tax on additional income. You should check with your employer how much interest is earned on the contribution amount during the financial year. If the interest is earned above the limit of 9.5 per cent p.a. it is taxable in your hands.
Similarly, if the contribution by your employer is more than 12 per cent of your salary, then the excess amount above the 12% is taxable in your hands.
This is the mandatory amount as is required by law. However, if you wish to contribute a higher amount to your PF, you can do so. This additional contribution is called VPF and is also included under the deduction for 80C.
The interest earned and maturity amount is tax exempt. The government has increased the interest rates from 8.55% to 8.65% on EPF for FY 2018-19.
The maximum deduction that you can claim under Section 80C as a whole is Rs. 1, 50,000 so you can adjust your VPF contribution based on your other investments under this section.
Public Provident Fund (PPF) u/s 80C
Another scheme covered u/s 80C, PPF is provided by the Government. Your investment can range anywhere between Rs.500 to Rs.1, 50,000 within a given Financial Year. The interest on PPF is currently tax-free (compounded yearly) and the maturity period is 15 years. The interest rate on PPF is not fixed but rather subject to changes every Quarter.
Life Insurance Premiums u/s 80C
The premium that you pay towards the Life Insurance Policy for yourself, your spouse or your children is also eligible for exemption u/s 80C. It is not mandatory that the policy be taken from LIC only but can also be taken from any other Insurance Company registered under IRDA.
Repayment of Home Loan u/s 80C
If you have a home loan on your name and you’ve paid back the principal of the same during the Financial Year, you can claim the amount of Principal repaid as a deduction u/s 80C.
Additionally, any payment made to development authorities like Delhi Development Authority (DDA) for the purpose of purchase of a house (which has been allotted to you in a scheme in this regard) is also eligible for deduction u/s 80C.
Repayment of Interest on Home Loan u/s 80EE (and u/s 24):
If you have a home loan on your name and you’ve paid interest on the principal of the same during the Financial Year, you can claim the amount of Interest repaid as a deduction u/s 24 first and then the balance amount as deduction u/s 80EE.
The maximum deduction that you can claim under section 80EE is Rs. 50,000 and is subject to following conditions:
The loan taken by you was sanctioned between April 1, 2016 and March 31, 2017
The home loan taken does not exceed Rs. 35 lakh;
The value of house purchased by you does not exceed Rs 50 lakh;
The house for which loan is taken is your first house.
You can claim this deduction only if you have exhausted the limit available to you under the head 'Income from house property' under section 24 for Rs 2 lakh.
Health Insurance Premium u/s 80D
If you have taken Health Insurance and paid the premium for the same during the Financial Year, you can claim a deduction of up to Rs. 25,000 for the premium paid for yourself, your spouse and dependent children. Additional deduction of up to Rs. 25,000 or Rs. 50,000 can be claimed for premium paid for your parent’s health insurance depending upon their age. (If they are senior citizens i.e. 60 years or above, you can claim Rs. 50,000).
These limits reflect the total premium paid for all persons concerned and are not per individual limits.
Please note that this deduction is only available if you have made payments using any mode except for cash. Cash payments will be disallowed. Also note that you can claim deduction for both – issuance of a new policy and renewal of existing health insurance policy.
Medical Expenditure u/s 80D
Another deduction that your medical bills entitle you to is the deduction u/s 80D. You will be eligible for this deduction only if you satisfy the following two conditions:
Medical expenditure must be incurred on yourself (if you are a senior citizen) or on your senior citizen parents, and
The individual on whom the expenditure is incurred should not be covered under any health insurance policy.
Under this section, the maximum deduction is Rs. 50,000 unless both you and your parents are senior citizens, then the deduction limit will be Rs. 1, 00,000.
Deduction for Preventive Health Check-Up u/s 80D
Whoever said ‘Prevention is better than cure’ was definitely on the correct path. In the interest of prevention of illnesses and tax deductions, we totally recommend getting Health check-ups done regularly!
The maximum amount of deduction that you can claim under this head is Rs.5000. The deduction for preventive health check-up comes under the overall ceiling of Rs 25,000 or Rs 50,000, whichever is applicable. (Refer Point 6). This deduction can be claimed by entering details in the row corresponding to 'Preventive health check-up'.
Deduction for Interest paid on Loan taken for Higher Education u/s 80E
This section allows you to claim deduction for the amount of Interest paid (during the Financial Year) on an Education Loan taken for higher studies (Graduation or Post Graduation) for yourself, your spouse or your children. This deduction is available for up to 8 years starting from the year in which interest payment began or until interest is paid in full (whichever happens earlier).
Deduction for Interest income earned on your Savings Bank Account u/s 80TTA
Interest income earned on your savings account (held with a Bank or a Post Office) is taxable by nature. However, you are eligible to claim deduction for interest earned up to an amount of Rs. 10,000 in aggregate (for all Banks and Post Office Accounts collectively). The balance interest income above Rs. 10,000 will be taxable as per applicable tax rates for your tax bracket.