How can you save on taxes only through expenses? Here are 6 ways

Many taxpayers are now regretting not having invested in tax-saving instruments by March 31 this year. This remorse stems from the understanding that many would not be able to avail of the necessary deductions and exemptions under various sections of the Income Tax Act, 1961. However, not having invested enough in these options should not translate to more tax outgo as you can save on taxes through expenses too.

For the unversed, some taxpayers have the opportunity to lower their overall tax burden and enhance their income without requiring any investments. This is possible through the Act, which offers deductions in different sections for various investments, savings, and expenses incurred by taxpayers within a specific financial year.

Here are some valuable insights on how taxpayers can effectively reduce their tax liability solely through expenses, without the need for any investments. These include:

Standard deduction under Section 16 IA

Under Section 16 IA, salaried employees are entitled to a deduction of either Rs. 50,000 or the amount of their salary, whichever is lower. This deduction applies to salaried taxpayers.

Taxpayers who get multiple Form 16s from different employers, all are eligible for deduction. However, it’s important not to combine the deduction amounts from both forms. Instead, individuals can claim a standard deduction of up to Rs 50,000 from their gross salary income.

Employers generally consider this deduction when computing the tax deducted at source (TDS) for annual wages. The amount should be reflected in Form 16 provided by the employer. However, if it is not included, one can claim the standard deduction while filing the income tax return (ITR).

Deduction of interest under Sections 80TTA and 80TTB

Many individuals deposit their surplus funds in banks, earning interest income on these deposits. Under Section 80TTA, individual taxpayers and Hindu Undivided Families (HUFs) can claim a maximum deduction of Rs 10,000 for interest earned from savings accounts. Additionally, resident senior citizens aged 60 years and above can enjoy an enhanced deduction of Rs 50,000 under Section 80TTB. This deduction covers not only interest from savings deposits but also interest earned from fixed deposits and other types of deposits.

Deductions under Section 80C

You can claim deductions under Section 80C towards various expenses including life insurance premiums paid, children’s tuition fees paid, and payment of medical insurance premiums.

Life insurance is a crucial form of social security that individuals acquire for themselves and their families. Taxpayers who contribute towards life insurance premiums for themselves, their spouse, and their children can claim a deduction under Section 80C, subject to a maximum limit of Rs 1,50,000. However, it is important to note that the life insurance premium should not exceed certain specified limits in order to qualify for this deduction.

Individual taxpayers who pay tuition fees to any university, college, school, or other educational institution located in India are eligible to claim a deduction under Section 80C of the Income Tax Act. This deduction is subject to an overall threshold limit of Rs 1,50,000 and can be claimed for a maximum of two children's full-time education purposes.

The rise in medical costs and the impact of the pandemic has highlighted the significance of having medical insurance. Consequently, individuals can claim a deduction under Section 80D of the Income Tax Act for the mediclaim premium paid towards medical insurance or contributions to the Central Government Health Scheme or a notified scheme. This deduction is available for the individual, their spouse, dependent children, or parents, up to a maximum of Rs 25,000 (or Rs 50,000 for senior citizens).

The higher limit of Rs 50,000 is applicable when medical insurance is purchased for a senior citizen. Furthermore, senior citizens above the age of 60 years, who are not covered by health insurance, can claim a deduction of Rs 50,000 for actual medical expenses incurred.

Additionally, a deduction of Rs 5,000 is available within the mentioned limits for payments made towards preventive health check-ups. Taxpayers cannot claim the benefit of the expenses for such check-ups if paid in cash.

Deduction with respect to rent paid under Section 80GG

In many cases, individuals who reside away from their hometowns for work or other reasons often incur rental expenses. Individuals who receive House Rent Allowance (HRA) can claim an exemption under Section 10(13A) of the Act. However, individuals who do not receive HRA but still make rental payments can avail of a deduction under section 80GG of the Act, whichever is the least of the following amounts:

• Rs 5,000 per month
• 25 per cent of the adjusted total income
• Actual rent paid minus 10 per cent of the adjusted total income.

However, it is important to note that the deduction under this section is only available if the individual taxpayer does not own any residential accommodation in their own name, or in the name of their spouse or minor child.

Leave travel concession under Section 10(5)

Taking vacations is a common practice for many individuals. Employees who receive Leave Travel Allowance (LTA) can claim deductions for expenses incurred on travel within India. This deduction applies to the individual, their spouse, children, parents, and siblings who are wholly or primarily dependent on the taxpayer. This exemption can be availed for up to two journeys undertaken within a block of four calendar years, such as the period 2022-2025, subject to the specified conditions.

House loan repayment under various sections

The desire to own a house is a common aspiration for individuals, and many choose housing loans as a means to purchase a property. Individual taxpayers have the option to claim deductions on housing loan interest under Section 24(b) of the Act. For self-occupied properties, the interest deduction is limited to Rs 2,00,000, subject to specified conditions. 

However, in the case of let out or deemed to be let-out properties, taxpayers may claim the entire interest amount as a deduction. Additionally, taxpayers can claim a deduction on the principal repayment component under Section 80C of the Act.

It is important to note that taxpayers who opt for the new proposed tax regime may not be eligible to claim the above-mentioned deductions or exemptions, except for the deduction related to the standard salary deduction under Section 16(IA) of the Act.

The aforementioned deductions are available to taxpayers adhering to the old tax regime. This also means that taxpayers filing their ITRs for the FY 2022-23 under the new tax regime cannot claim the deductions discussed. However, there will not be any tax implication till the gross salary of Rs 7.5 lakh for taxpayers opting for the new tax regime as the standard deduction has been introduced in the new tax regime.