ATM :: There is hope beyond 80C

ANAND KALYANARAMAN | 26th Jan 2014| Hindu Business Line


Money donations, health insurance premiums and education loans can also give you tax breaks

To save tax, you can do a lot more besides investing up to ₹1 lakh in Section 80C instruments. You get tax breaks when you donate, pay health insurance premiums, incur medical expenses and repay education loans. Ditto when you service a home loan or start equity investments. Here’s how you can pay less to the taxman.

Be charitable
Donate to institutions and funds approved by the Government — this gets you deduction under Section 80G of the Income Tax Act. Give money. You won’t get the benefit if you give in kind (clothes or utensils). Also, cash donation is eligible only up to ₹10,000 a year. So, if you plan to give a bigger sum, do so by non-cash modes.

While what you give to many Government-run entities may be entirely tax deductible, the deduction is limited to 50 per cent of the donation to most non-Government entities. This tax break may be further limited to 10 per cent of your gross total income.

Insure your health
You never know when a medical emergency may arise. So, getting health insurance is a smart thing to do. Section 80D, by offering tax breaks, makes this move cheaper. You get a deduction of up to ₹15,000 a year for the premium you pay to get health insurance for yourself, your spouse and your dependent children. This goes up to ₹20,000 if any of you is a senior citizen.

Besides, if you pay the health insurance premium to cover your parents, you get an additional deduction of ₹15,000 a year (₹20,000 if either of your parents is a senior citizen).

But remember to pay the premiums by non-cash modes — only these qualify for tax breaks. Expense on preventive health check-ups will also get you a deduction up to ₹5,000 a year. This is part of the overall limit of ₹15,000 and can be paid even in cash.

Claim medical expenses
If you incur expenditure for the medical treatment, training and rehabilitation of a dependent spouse, children, parents or siblings who are disabled, you get deduction under Section 80DD. You also get the benefit if you buy an annuity or lumpsum payment policy for the benefit of such dependents.

The tax deduction is a fixed ₹50,000 a year, which goes up to ₹ 1 lakh if the disability is severe.

You can also get deduction on medical expenditure incurred on specified illnesses such as neurological diseases, cancer, AIDS, chronic kidney failure and haematological disorders.

This deduction under Section 80DDB is available if you incur the medical expense for yourself or a dependent spouse, children or siblings.

The tax break you get is the higher of the actual expense incurred or ₹40,000 (₹60,000 if the person undergoing treatment is a senior citizen). It will be reduced by the expense reimbursed by your insurer or employer.

Claim interest on loans
Interest paid on education loans and home loans can save you a tidy sum in tax. Section 80E allows deduction of the entire interest paid on loans to fund your education or that of your spouse, children or someone you take care of as a legal guardian. The loans must fund a Government-recognised course of study.

Also, the deduction is allowed only if the loan is taken from an approved financial institution or an approved charitable institution. You can claim the tax break for eight years at most — starting from the year you start paying the interest on the loan.

Repaying your home loan gets you two tax benefits. Principal repayment, whether as part of the monthly instalment or prepayment, is eligible for tax deduction, up to ₹1 lakh a year under Section 80C.

Besides, the interest payable on the loan taken to buy, construct, repair, renew or reconstruct your house is also allowed as deduction under Section 24. If the house is self-occupied, interest payable is deductible up to ₹1.50 lakh a year. But if the house is let out or deemed as let out (thus earning you rental income which is taxable), the entire interest payable on the home loan is allowed as deduction.

Besides, you get deduction on the interest payable on the loan till the house is acquired or constructed. This can be claimed in equal instalments for five years from the year in which the property is acquired or constructed.

Start investing in equities
If your gross total income is up to ₹ 12 lakh and you haven’t invested in equities yet, make a start by investing in specified stocks under the Rajiv Gandhi Equity Savings Scheme.

This can get you a tax break under Section 80CCG. You get a deduction of 50 per cent on investments up to ₹50,000; so the maximum break you get is ₹25,000.

You can invest the amount of ₹50,000 over three consecutive years. You also get the break if you invest in mutual funds/exchange-traded funds that invest in the qualified stocks.

But you will have to stick on with the investments for three years — there is a fixed lock-in period of one year and a flexible lock-in period for the next two years when you can sell some of your eligible equity investments but buy other eligible ones.

(This article was published on January 26, 2014)

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