More Tax Saving Option other than Section 80C

Most taxpayers are aware of the deductions available under Section 80C, the tax benefits of medical insurance and the advantages of a home loan. But there are also some inconspicuous sections of the Income

The problem is that many tax filing portals don’t give the taxpayer the option to claim these deductions. If the portal does not ask the relevant questions, you forego your right to claim these benefits. Admittedly, some of these deductions are available only in extraordinary circumstances. Even so, find out if you are eligible and how you should go about claiming them.

Gain from losses in stocks

Believe it or not, the losses you made in stocks this year can bring down your tax. If you have made any long-term capital gains from the sale of property, gold or debt funds, you can set them off against short-term capital losses in stocks and reduce your tax liability. The short-term capital losses can be set off against both short-term capital gains as well as taxable long-term capital gains. This can be especially useful for someone who has booked profits in gold ETFs and physical gold this year.

Suppose you made a long-term capital gain of Rs 6 lakh by selling gold ETFs. The tax payable on this amount is Rs 60,000. If, on the other hand, you sold some stocks within a year of buying and made a short-term loss of Rs 3 lakh, you can set this off against the gains from gold ETFs. So the gain from gold will be reduced to only Rs 3 lakh and the payable tax will be Rs 30,000.

The losses that have not been adjusted can be carried forward for up to eight years. Besides, only short-term capital losses from stocks can be adjusted against other gains or carried forward. So, the stocks you bought more than a year ago will not be eligible.

Rent is deductible even if you don’t get HRA

In metros and large cities, house rent can account for as much as 40-50% of the total household expense. This is the reason that house rent allowance (HRA) for salaried individuals is exempt from tax to a certain limit. But what if your salary does not include an HRA component or you are a self-employed professional or businessman? Under Section 80GG, you can claim deduction for the rent paid even if you don’t get HRA. Not many people are aware of this deduction.

However, there are stiff conditions to be met. The least of the following three can be claimed as deduction: rent paid, less 10% of total income; or Rs 2,000 a month; or 25% of the total income. Also, the taxpayer should not be drawing any HRA or any other housing-related benefit.

Besides, he or his spouse or minor child should not own a house in the city where he lives and he should not claim tax benefits for some other self-occupied house. If you satisfy these conditions, you can avail of the tax benefit. Though you cannot claim more than Rs 2,000 as deduction per month, it can bring down your tax by Rs 7,400 a year in the highest tax bracket.

Certain diseases get tax benefits

The treatment of a chronic illness can be a drain on the finances of a taxpayer. This is why the Income Tax Act allows a deduction of Rs 40,000 if one has a dependant who suffers from any of the ailments specified under Section 80DDB. The deduction is higher at Rs 60,000 if the patient is a senior citizen.

The illnesses include neurological diseases (dementia, dystonia musculorum deformans, motor neuron disease, ataxia, chorea, hemiballismus, aphasia and Parkinson’s disease), malignant cancers, full-blown AIDS, chronic kidney failure and haematological disorders (haemophilia and thalassaemia).

Dependants can include spouse, children, parents and siblings. However, there are a few conditions. The patient should be wholly or mainly dependent on the taxpayer and should not have a separately claimed deduction for the disability. If the amount spent is reimbursed by the employer or an insurance company, there is no deduction. If the taxpayer gets a partial reimbursement for the expenses, the balance can be claimed as deduction.

Disabilities also eligible for deduction

If you suffer from a disability, you can claim a deduction of Rs 75,000 under Section 80U. If you have a disabled dependant, you can claim Rs 50,000 under Section 80DD. Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness.

The deduction is available only if the impairment is at least 40%. If the disability is severe (80% or above), the deduction is Rs 1 lakh a year. The dependant could include spouse, children, parents and siblings. Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that the taxpayer may spend on himself or on the disabled dependant.

However, the disabled person should be wholly or mainly dependent on the taxpayer for maintenance and should not have claimed a separate deduction for the disability under Section 80U. A deduction of Rs 75,000 can cut tax by Rs 23,175 in the highest tax bracket. In case of severe disability, the tax is lower by Rs 30,900.

Donations get you tax benefits

The taxman is generous to the people who have been kind. Donations given to recognised organisations are eligible for tax deduction. This includes any amount contributed to a recognised political party. It can be claimed as a deduction under Section 80GGC (80GGB for corporates). This is a new deduction and was introduced in April 2010.

The donation can also be made to an electoral trust that works for conducting elections. Interestingly, unlike other deductions, there is no ceiling on the amount that can be claimed as deduction. Of course, this doesn’t mean one can claim deduction for cash payments. The deduction is available only if the sum goes into the party coffers.

Other donations also get you tax benefits. Donations to charitable organisations are also eligible for tax deduction and range from 50% to 100% of the amount donated under Section 80G. Donations to institutions involved in scientific research or rural development get exemption under Section 80GGA.

The quantum of deduction depends on the nature of the organisation. For instance, money given to certain establishments, such as the National Defence Fund, the Prime Minister’s National Relief Fund and the Chief Minister’s Relief Fund enjoy 100% deduction.

On the other hand, NGOs such as Child Rights and You, Helpage India and the National Children’s Fund give you only 50% deduction. So, it’s a good idea to find out how much deduction is available before you write out a cheque.

However, you cannot use this route to evade tax by bringing down your income tax slab. There is a ceiling on the deduction a taxpayer can claim in a year. The quantum of deduction is limited to 10% of the gross total income of the donor. Also, only cash donations are taken into account. Donations of food, clothes and medicines do not qualify for such a deduction.

Education loan interest is fully deductible

The cost of higher education is putting pressure on family budgets and forcing parents to borrow for their children’s professional education. The good news is that the interest paid on an education loan is fully deductible from taxable income under Section 80E.

Till a few years ago, this deduction was available only to the borrower. Now, even a parent or a spouse can avail of it. What’s more, this includes loans taken for vocational courses. If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for up to eight successive years, starting from the year in which the interest is first paid.

So, if you take a Rs 10 lakh education loan at 10% interest for 8 years, you can save Rs 1.41 lakh in tax in the highest tax bracket. This will bring down the effective cost of the loan to 7% per annum. However, loans taken for siblings and other relatives do not qualify. Also, the lender must be a recognised financial institution; loans from employers or individuals do not count.

Interest paid on a second home loan is fully deductible

The tax benefits of a home loan are well known. Under Section 24b, one can claim a deduction of up to Rs 1.5 lakh a year for the interest paid. If the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as deduction.

If you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or deemed income is taxable. For instance, if you have taken a home loan of Rs 50 lakh at 9.5% for 20 years, your interest payment in the first year will be Rs 4.7 lakh and you can save tax up to Rs 1.09 lakh.

HRA as well as home loan benefits

This might come as a surprise to many people but you can claim both HRA exemption as well as tax benefits of a home loan. However, this applies only if the house is in another city or too far away from workplace. So, if you have taken a loan to build a house in your home town and live on rent in another city, you can claim both the HRA exemption as well as tax benefits for the interest paid on the home loan. In the highest tax bracket, a deduction for Rs 1.5 lakh will bring down your tax by Rs 46,350.

Your family can reduce your tax

When parents invest in the name of their children, the income earned is clubbed with that of the parent who earns more and is taxed at the applicable rate. However, there is a small deduction of Rs 1,500 available per child, with a maximum limit of two children. So, if you open a fixed deposit in your child’s name, interest of up to Rs 1,500 will not be clubbed with your taxable income.

Incidentally, if you are living in your parents’ house, you can pay rent to them. If your parent has no other income or pays a lower tax, this can bring down your tax liability significantly. However, the rent will be taxable as the income of the parent after a 30% standard deduction.

This means, you can safely pay a senior citizen parent up to Rs 3.57 lakh a year without adding to his tax liability. Very senior citizens (above 80) can be paid up to Rs 7.15 lakh. If the house is jointly owned by both parents, divide the rent between the two.

If you are eligible for any of these nine deductions, make sure you claim it in the tax return. Why leave any money on the table for the taxman? If you have already filed your return, you can still avail of these deductions by filing a revised return. However, if the tax department has already finished the assessment, you won’t be allowed to revise your return.