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Look beyond 80C deductions to reduce your tax liability

  • There are quite a few products and expenses that do not fall into the 80C basket of deductions but can fit into your financial plan and also get you additional tax benefit
  • Health insurance premiums, and interest paid on home and education loans can get you extra tax benefit

When it comes to tax saving, most people consider only those products that come under Section 80C of the Income Tax Act, 1961. Accordingly, they exhaust the 1.5 lakh limit under the Section and rest easy as far as saving taxes is concerned. But the truth is you can bring down your tax liability further by considering investments and expenses eligible for deduction under Sections other than 80C.

We tell you the Sections and the relevant products you can use to reduce your overall tax liability.

Section 80CCD (1b)

National Pension System (NPS): Besides 80C, the major deduction that you can avail is by investing in NPS, which offers an additional deduction of 50,000 under Section 80CCD (1b).

Often, people plan for financial goals such as children’s education and marriage, but ignore planning for their own retirement. NPS is a contributory scheme which offers an annuity or regular pension after the age of 60. You can invest in equity and debt options, though equity investments are capped at 75% of your money. You can save up to 15,600 by investing in NPS if you are in highest tax bracket of 31.2%.

Section 80D 

Health insurance premiums: With rising medical expenses in the country, having a health insurance cover is a must for everyone. Paying for medical bills from your savings can easily derail your financial goals.

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The premium that you pay for a health insurance policy qualifies for a deduction under Section 80D of the Income Tax Act. Premiums paid for a health insurance plan taken for yourself, your spouse and children qualify for a deduction up to 25,000. If you pay premiums for a cover bought for your parents, who are not senior citizens, you can get an additional deduction of up to 25,000. If your parents are senior citizens, premiums up to 50,000 are eligible for deduction.

The total deduction you can avail from paying health insurance premiums is 75,000, which can translate into a saving of 23,400 if you are in the 31.2% tax slab. 

Section 80E

Interest paid on education loan: You can take an education loan to finance higher education for self, spouse or child. Interest paid on the loan qualifies for deduction under 80E.

You can claim deduction on the entire interest paid for eight consecutive years from the year in which you start repaying the loan. Principal repayment is not eligible for a deduction. To make the claim, get a loan repayment certificate from the lender for each year.

Section 24(b)

Interest paid on home loan: Buying a house is typically the biggest investment people make in their lifetimes; often people take home loan to fund the house purchase. Both principal repayment and interest paid on a home loan taken for purchase or construction of a house qualify for deduction under separate sections.

While the principal repayment qualifies for deduction under 80C, the interest paid, in case of a self-occupied house, qualifies for deduction under Section 24(b), with an overall limit of 2 lakh. In case of a rented house property, if losses arise on account of interest repayment after adjusting with the rent received, the losses can be set off with other income only to the extent of 2 lakh. Any additional loss can be carried forward for the next eight assessment years.

Section 80G

Donation: More and more people are spending some amount for charity these days, and the government appreciates such gestures by offering tax deduction. Donations made to specified charitable institutions and relief funds are also deductible. Exemption limits on donation can vary depending on the institution and the Section under which it is registered. For instance, a donation to the Prime Minister’s National Relief Fund qualifies for 100% deduction, but a donation to Jawaharlal Nehru Memorial Fund qualifies for 50% deduction. However, donations above a certain limit do not qualify for deduction.

To find out the list of specified institutions, log on to the income tax website, incometaxindia.gov.in, and click on the “Exempted Institutions" link under the “Important Links" tab.

There are quite a few other products and options that can get you additional income tax deduction (see graph to check some others). If you find it difficult to manage these on your own, do take the help of a tax expert. 

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