It is just smart to save tax making the best use of tax-saving options provided by the government. A lot of tax saving options as well.
However, the majority of taxpayers invest/save in products defined under the most popular Section 80C by claiming a deduction on them and think they can save this much tax only. We will share 5 tax saving tricks that help you to save more on tax.
1. Additional tax saving with NPS under Section 80CCD
You can claim a tax deduction under Section 80C by contributing Rs. 1.5 lakhs yearly in NPS. Additionally, Apart from that, you can claim a tax deduction under Section 80CCD (1B) by contributing an additional amount of Rs. 50,000 in your NPS account.
It means that if someone falls under the 30 percent tax bracket, then the additional tax saving helps them save up to Rs. 15,600 on their income tax and 4 percent education cess is also included in this.
2. Tax saving by Health Insurance premiums under Section 80D In the era of increasing medical cost, health insurance has become very important for everyone. If you don’t have any health insurance cover, then a medical emergency can cause a negative impact on your financial life.
Tax incentives are offered by the government to encourage investment in health insurance by more people. The health insurance premium amount can be used to claim tax deduction under Section 80D.
You can claim tax benefits on the premium paid for a standard health insurance policy, health insurance riders, and top up health cover. An added advantage of this section is that you can get tax benefits on preventive health check-up expenses. However, it should be within the section limit.
The limit on tax deduction under Section 80D depends on who is included in the health insurance cover. This limit can be Rs.25,000, Rs.50,000, and Rs.75000 or Rs.1 lakh, depending on the situation of the taxpayer’s family.
If you buy health insurance for yourself and your family excluding your parents, then you can claim a tax deduction of up to Rs. 25,000 on the premium paid. If even a single person in your family is above the age of 60, the limit you can claim is Rs. 50,000.
Apart from this, if you buy health insurance for your parents, then there is a limit of Rs. 25,000 for non-senior citizen parents and 50,000 for senior citizens. This limit is over and above your family limit.
Let’s understand the deduction you can claim with an example. Let’s assume that Anil, who is a 35-year-old working professional, buys a health insurance policy.
Anil, his spouse, and dependent children are included in this policy. In this scenario, the limit of tax deduction can be up to Rs. 25,000 in a financial year under Section 80D.
This limit includes preventive health checkups as well. Anil spends Rs.18,000 per annum for his health insurance premium and he also spends Rs.4,000 per annum for a preventive health checkup.
Tax deduction under Section 80D: Rs.22,000 Now Anil felt that his senior citizen parents should also have health insurance.
Anil buys health insurance for his parents and in this case, the limit under section 80D will be Rs. 75,000.
This includes a limit of Rs. 50,000 for the premium paid on the insurance for his parents and remaining Rs. 25,000 on the premium paid for the health insurance policy of himself and his family.
3. Tax saving on the medical expenditure of a disabled dependent under Section 80DD a taxpayer can claim a deduction under Section 80DD if he/she takes care of a dependent disabled family member.
This deduction is offered to help you take care of a disabled family member who is dependent on you.
Section 80DD defines disabled dependent family members which include wife, children, parents, or siblings. In the case of HUF, any member of HUF can be disabled dependent.
In order to claim a deduction in this section, it is necessary that the disabled dependent has not claimed deduction under section 80U.
The disabilities covered under this section are blindness, low vision, loco-motor disability, hearing impairment, mental retardation, mental illness, autism, and cerebral palsy.
You can claim deduction on the following medical expenses: Expenses incurred on medical treatment, nursing, training and rehabilitation of the disabled dependent.
The premium paid for the insurance policy designed specifically for such cases. The deduction depends on the condition and seriousness of the disability of the dependent person. If the disability of the dependent person is at least 40% then one can claim a deduction of about Rs. 75,000 in a financial year.
If the dependent person is at least 80% disabled, then the taxpayer can claim up to Rs 1,25,000 tax deduction.
4. Tax saving on repayment of an education loan under Section 80E
You get tax benefits on the repayment of the interest component of the loan taken for higher education. This benefit is available under section 80E and there is no limit on it.
The tax deduction can be claimed by whoever is making the repayment, it could be the parents or the student. Taxpayers can claim tax deductions up to 8 financial years from the year of commencement of interest repayment of the education loan, or till repayment of the entire interest, whichever falls earlier.
For example, if you repay the education loan for 6 years from the date of repayment, then tax deduction will be available only for a period of 6 years. You can repay your education loan after the 8 year time period but you would not be able to claim the tax deduction after the 8th year.
5. Tax Savings on interest earned on Savings Bank account
We all keep balance in our bank accounts and earn interest on it. All individuals and HUFs can claim a tax deduction on this interest.
This deduction can be availed under Section 80TTA. This is for all taxpayers who are not senior citizens. Senior citizen taxpayers fall under Section 80TTB.
Now let's first see, what all sources are considered for interest earned- Bank Savings Account Post office Savings Account of Cooperative Societies, who are into banking business You should keep this in mind that interest on FDs, RDs or other term deposits cannot be claimed for deduction under this section.
The maximum deduction limit under this section is Rs. 10,000. This means you can claim a deduction on the interest earned up to Rs 10,000 from your savings bank account. If you have many savings accounts then also you can not claim deduction beyond Rs. 10,000 interest.
The interest more than this amount will be considered as income from other sources and tax will be levied.
For example, Ananth has 3 savings bank accounts. He earned interest of Rs.6,000, Rs.8000 and Rs.12,000. The total income from interest is Rs.26,000. But he can claim only Rs.10,000 for tax deduction under Section 80TTA.
This means that the remaining Rs.16,000 will be treated as income from other sources and will be included in taxable income. Section 80TTB This section came into being on 1st April 2018.
This was launched for the benefit of senior citizens who usually use the interest from their savings bank account and deposits as their income.
Under this section, one can claim up to Rs. 50,000 as tax deduction.
Now that you know these 5 lesser-known ways to save taxes, go ahead and utilize whatever is applicable to you.