Priyanka Parashar/Mint
Priyanka Parashar/Mint

DYK: Paying by cash for some products may not get you the tax benefits

Here are a few cases where even after investing to get tax deduction, you cannot avail the benefit

Investing for the purpose of tax saving is a recurring and long-term exercise, but many people tend to do this at the last minute. In this hurry, many investors choose wrong products, which are not in line with their goals or portfolio. And often, because of lack of planning, many fall short of funds to invest at the last moment, or pay without thinking about whether the payment method will be accepted when it comes to availing tax deductions. As a result of this last minute scramble, even if the investor has managed to buy what she wanted, she may not get the tax benefits. Here are a few cases where even after investing to get tax deduction, you cannot avail the benefit.

Health-related products

Each tax-saving avenue has a set of rules regarding exemption limit, lock-in period and mode of payment. While you can pay by cheque, through Internet banking, credit card or by cash, in some cases, cash payments will not be considered for tax deductions. Know these specifications so that your tax-saving investments don’t go to waste.

One such product is health insurance. If premium has been paid in cash, then the payment is not eligible for tax deduction under section 80D of the income-tax Act. The upper limit for tax benefit is 25,000 for a health insurance policy bought for self, spouse and children. In case any of the assured persons is a senior citizen (above 60 years of age), the upper limit is 30,000 per year. Similarly, within the same section, one can avail additional deduction for policy bought in the name of parents. Again, the deduction limit against the premium paid is 25,000 and if the parents are senior citizens, the limit is 30,000. To get the tax benefits for health insurance premiums, be sure to pay by any mode other than by cash.

You can also claim tax deduction for preventive health checkups under the same section i.e. 80D. The aggregate deductions for preventive health checkups of self, spouse, dependent children, father and mother cannot exceed 5,000. But the overall limits under the section remain the same, i.e., 25,000 and 30,000. The difference here is that cash payments are accepted and considered for purpose of tax deduction.

Donations

Donations made in cash above a certain limit also do not qualify for tax deduction. Under section 80G, donations made by an assessee are eligible for deduction up to 100% or 50%, depending upon the institution. However, the net qualifying amount is limited to 10% of the gross total income of the individual assessee. But no tax deduction will be allowed if payment of more than 10,000 has been made by cash. This rule applies from assessment year 2013-14.

So, even if you are investing in tax-saving products at the last moment, pay attention to your mode of payment so that the tax benefit is not lost, and avoid using cash.

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