The most popular deduction is the Rs1 lakh knock out under section 80C. But there are six other deductions under section 80 that you may need to use to reduce your taxable income. And, of course, using your home loan as a tax deduction tool is always a great idea. Not only do you get a deduction of up to Rs1 lakh under the 80C umbrella on the principal, but the interest up to Rs1.5 lakh is tax deductable too. If you rent the house out, the entire interest is a deduction.
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The government wants you to have a safety net that will give you cash in case of a medical emergency that requires hospitalization. Therefore, the premium you pay on mediclaim reduces your taxable income up to a limit. You can buy a policy to cover yourself, your spouse, dependant children and parents and claim a deduction under section 80D. The maximum deduction you can claim is Rs15,000 a year. A mediclaim policy for a family of four with an individual cover of Rs2 lakh costs around Rs5,031 a year. If you are a senior citizen, you get a higher limit of Rs20,000 a year. And if you are paying the premium for your parents (who may not be dependant on you), the government shows its approval by allowing you a joint deduction of Rs35,000 a year. That’s quite enough for building a safety net for the health needs of your family.
Tip: Cash payments don’t work. You need to pay by cheque to get the deduction.
Up to Rs50,000 a year can be taken as a deduction for spending on the medical treatment or specified insurance scheme of a dependant (spouse, parents, kids or siblings), who has a disability, including blindness, hearing impairment, locomotor disability and mental illness. This is for up to 40% disability. For “severe” or 80% disability, you can claim up to Rs1 lakh. The deduction is not for the actual expenditure, but the whole amount is a deduction. Look out for a full review on Friday.
Tip: You need to submit a medical certificate (issued by a specified medical authority) with your tax return.
The entire interest payment on a loan to fund all fields of study after passing senior secondary or its equivalent exam from any school, board or recognized university can be taken as a deduction. The loan can be taken for yourself, your spouse or kids or even for a kid of whom you may be the legal guardian. The deduction carries on for a maximum of eight years or till the interest is fully paid off, whichever is earlier.
Tip: Remember, the loan should be from the “approved” list of charitable institutions or a notified financial institution.
Even charity gets your money back. Depending on who you give to, half or the entire donation can become a deduction from your income.
Tip: You need a receipt from the eligible institution to get this deduction.
The rent you pay to live in your house gets you a tax break as well. To be eligible, you should not own a residential accommodation in India or abroad. The deduction you get is the least of:
• Rs2,000 per month, or
• 25% of your total income, or
• Excess of rent paid over 10% of total income
Tip: Remember that you will need receipts to go with the return to get this deduction.
For the physically and mentally challenged, there is a deduction of Rs50,000 for having 40% of an “approved” disability, such as blindness, hearing impairment, low vision and mental retardation. This rises to Rs1 lakh for 80% disability. The individual does not need to submit any proof of medical expenses. The entire amount is a deduction.
Tip: You can’t claim under this if you have already used section 80DD.
80C and 24(B)
Your home on loan: the biggest deduction of them all
You take a home loan and open a whole box of claimable deductions. The loan can be used to get a section 80C deduction. This means that you need not invest in any insurance plan or provident fund but use the entire Rs1 lakh to soak up the 80C tax break from the principal due on the loan. If your spouse is a co-applicant on the loan, he can claim up to Rs1 lakh as well.
An additional Rs1.5 lakh each can be claimed by your spouse and you on the interest due on the loan, if you live in the house. Already, on a joint loan and property, the deductions are at Rs5 lakh. It gets even better if the house you own is on a loan and is rented out. The entire interest due on the loan becomes a deductible expense for you and your spouse.