A few lesser-known tax-saving tools can help in reducing your tax outgo while preserving your liquidity
While the tax-saving options such as term and health insurance premiums, Equity-Linked Saving Schemes (ELSS), tax-saving fixed deposits, Public Provident Fund (PPF), Unit-Linked Insurance Plans (ULIPs), home loan repayment, etc. are well known, there are several other tax exemptions and deductions that can help taxpayers in reducing their liability.
Let’s look at some of the lesser-known tax-saving tools and expenditures that can help in reducing your tax outgo while preserving your liquidity:
Section 80TTA: Interest earned from savings account
Most taxpayers are unaware of the tax benefit available under Section 80TTA. This Section makes interest income of up to Rs 10,000 p.a. earned from savings accounts tax-free beyond which the interest income becomes taxable as per the tax slab of the depositor. While savings accounts are usually associated with low-interest rates ranging from 2.7-4.75 per cent per annum, some private sector banks and small finance banks are offering higher interest rates of up to 6- 7.25 per cent p.a. depending on the balances kept with their savings accounts. Coupled with these high-interest rates and benefits of high liquidity and deposit insurance cover of up to Rs 5 lakh from DICGC, an RBI subsidiary, these high-yield savings accounts can be an excellent option for investors to park their emergency fund or meet their short term financial goals.
Section 80GG: Deduction on rent for those not receiving HRA
Employees receiving HRA can claim a tax deduction on the rent paid by them under Section 10(13A). However, even those living in rental accommodation but not receiving HRA as a part of their salaries or non-salaried people living in rented accommodation can claim a deduction for their rental expenses under Section 80GG of the Income Tax Act. The deduction amount would be the least of the following --- Rs 5,000 per month, 25 per cent of the total income, and actual rent paid more than 10 per cent of the total income.
Section 10(13A): Availing exemption on HRA by paying rent to parents
Another lesser-known way to avail of tax deduction under Section 10(13A) is to pay rent to your parents. Taxpayers who are staying in accommodation owned by their parents and paying rent to them can claim a tax deduction for the same under Section 10(13A). However, the rental income has to be disclosed by their parents while filing tax returns.
Section 80TTB: Interest earned by senior citizens on deposits
Section 80TTB allows senior citizens to claim a tax deduction of up to Rs 50,000 on the interest income earned from deposits held with banks, post offices, and co-operative banks. Deposits include savings account, term deposits, and recurring deposits. This deduction is especially important as most banks tend to offer incremental interest rates of usually 50 bps on fixed deposits opened by the senior citizens. Being aware of this deduction will help the conservative investors among senior citizens in planning their tax-savings investments and earn tax-free returns accordingly.
Section 80DDB: Deduction for medical treatment of certain diseases
Section 80DDB allows taxpayers to claim a deduction for treatment of eligible diseases as specified in Rule 11DD of Income Tax Act for self or any of his dependents. Some of the diseases included in Rule 11 DD include malignant cancers, full-blown AIDS, chronic renal failure, haematological disorders, and neurological disorders like dementia, Parkinson disease, etc leading to disability of 40 per cent and above. However, the deduction can be claimed only on submitting the relevant prescription from the list of specialists specified under section 80DDB. If the person requiring treatment is a senior citizen, then the maximum deduction available is Rs 1 lakh p.a. For others, the deduction has been capped at Rs 40,000.
Section 80C: Tuition fee paid for children’s education
Section 80C allows tuition fees paid for your child’s full-time education in school, college, university, or other educational institutions situated within India to be claimed for a tax deduction for a maximum of two children. However, other types of fees such as uniform fee, development fee, donation, or any other fee of similar nature cannot be claimed as a tax deduction. The educational institute can be affiliated with a foreign university but should be situated in India only.
The author is CEO & Co-Founder, Paisabazaar.com
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