• Feb
  • 14
  • 2014

Lesser Known Tax Saving Tips / Deductions

CA Sandeep Kanoi

For most  of the people  ‘tax savings’ brings to mind life insurance, PPF, NSC, and equity-linked savings scheme, among others, that qualify for tax deduction under Section 80 C of the Income-Tax Act. An individual can claim tax deductions of up to Rs 1 lakh under 80C.   However, there are other lesser known avenues that offer additional tax breaks to individuals. They are not widely discussed as they involve special situations in life such as having a special dependant, paying rent to parents, owning a house in another city, and so on. Here is a small list you could explore.

Paying rent to your parents

Do you live in your parents’ house? You can pay them rent to claim House Rent Allowance exemption. This is possible only if the property is registered in the name of your parent. The owner will be taxed for the rental income after a 30% deduction. So, if you pay your father a rent of Rs 3 lakh a year (Rs 25,000 a month), he will be taxed for only Rs 2.1 lakh. If your parents are retired and do not derive any significant taxable income, the amount of rent would be tax free in their hands. It is advisable that you enter into an agreement with them and actually make the payment every month, preferably by cheque.

It gets better if the property is jointly owned by both parents. Then you can divide the rent two-ways so that the tax liability gets split between the two parents. If their income exceeds the basic exemption limit, you can help them save tax by investing in their name under Section 80C options such as the Senior Citizens’ Saving Scheme, five-year bank fixed deposits or tax-saving equity mutual funds.

Take a look at the example to see the tax implications. Let us assume your monthly basic salary is Rs 40,000 and HRA is Rs 16,000. Your monthly rent is also Rs 16,000. In this case, of the total monthly HRA, Rs 12,000 will be tax exempt. Assuming you are in the 20% tax bracket, your annual tax saving would be Rs 29,664.

Please note that you will have to submit copies of rent receipts or rent agreement, depending on what your organisation stipulates. However, avoid claiming tax benefits on rent payments made to the spouse as the arrangement can be characterised as a sham transaction, say experts.

Read about -

House Rent Allowance (HRA) taxability, working / calculation

Tax Benefits – House Rent Allowance (HRA) Vs. Rent Free Accommodations (RFA)

Renting and Home loan in two different locations

Individuals today are constantly on the move for better job prospects. This could result in a person living in a rented place in the city he is working while repaying the loan for a home bought in his native city or any other city.  In such a scenario, the rent that an individual pays is eligible for HRA exemption. Further, a deduction can be claimed on the interest paid for the housing loan used to purchase the property at the native place/any other city.

Let us assume your monthly basic salary is Rs 40,000 and HRA is Rs 16,000. Your monthly rent is Rs 16,000 and annual interest payment on your housing loan is Rs 1.45 lakh. In this case, of the total monthly HRA, Rs 12,000 will be tax exempt in your hands. Further, you can claim deduction under section 24(b) of the Income-Tax Act, 1961, on the interest payable on your housing loan.

For claiming HRA exemption, you need to submit copy of the lease agreement or rent receipts. For claiming deduction on housing loan interest, you need to submit a copy of the tax certificate issued by the housing finance company.

FAQ on Housing Loan & Income tax benefit

Taxability of second House under Income Tax Act,1961

Deduction of Interest on Borrowed Capital From House Property income

Set off of Capital Loss Against Capital Gain

While most of us know that we need to pay taxes on short term or long term capital gains, not many are aware of the fact that capital losses, if any, can be balanced off against gains. So, for instance, if you have made a long-term capital gain of Rs 15 lakh by selling off your property and long-term capital loss of Rs 3 lakh by selling stocks which are either not listed or are sold off market  , the total taxable amount would Rs 12 lakh.

Please note Capital Gain on Sale of Shares sold through Stock Exchange can not be set off against other capital gain as profit from sale of shares of listed companies through stock exchange in exempt.

It is important to note that short term losses can be balanced off against both short term as well as long term capital gains. However, long term capital losses can only be balanced off against long term capital gains.

Carry Forward and Set Off of Losses – Income Tax

Charity to noble causes count

Charitable contributions are deductible up to 10% of your income under Section 80G. Depending upon the institution to which the donation is being made, the deduction can be either 100% or 50% of the amount donated.  You must Ensure that you obtain a receipt from the institution and a copy of their income-tax exemption certificate. Instead of giving the money directly to the needy and not getting any deduction, you can make a charitable contribution to an NGO that provides assistance to the needy. The individual is then able to get a tax deduction while still contributing to a noble cause.

Deduction U/s. 80G of Income Tax Act, 1961 for donation

Contributions to a political party

If you have contributed any amount to a recognised political party, you are eligible to claim a tax deduction ranging from 50 percent to 100 percent of the amount under Section 80GGC for individuals and Section 80GGB for corporate organisations. One can contribute up to 10 percent of one’s gross total income to a political party.

Home loan and joint home loan

The principal repayment of the home loan qualifies for deduction under section 80C; the interest payable on the home loan is allowed as deduction under section 24 of the Act. The deduction in respect of the interest is available in full for properties that are treated as let out, but in case of a property treated as self-occupied, the amount cannot exceed Rs 1.5 lakh per financial year, subject to certain conditions.

However, you cannot claim interest deduction when the flat is under construction. The interest paid during the per-construction period can be claimed as deduction in five equal installments starting from the financial year in which the construction is completed. Where the property is jointly owned, with the share of each owner being definite, the net taxable annual value of the property is apportioned to each of the joint owners in the ratio of their share in the property. And, as the shares are definite, each holder is eligible to claim a separate deduction in case the property is jointly owned.

Tax & Loan Eligibility benefits from Home loan in Joint Names

Educational expenses of Children

It is well-known that the deduction under section 80C is available to an individual in respect of the tuition fees of his/her children with an overall limit of Rs 1 lakh. The deduction, however, is not available for capitation fees/donation collected by the school or college. There is another section in the Act (section 80E) which provides for deduction in respect of interest on loan taken for higher education.

The educational loan can be taken for any course pursued by the individual or the spouse or children of the individual post the senior secondary course or its equivalent. This deduction is also available for supporting the education of a relative provided the individual is his/her legal guardian. It is allowed for a maximum of eight years starting from the year in which the interest is first repaid.

Deduction on children’s education u/s. 80C & 80E

Health Insurance

A deduction of up to Rs 15,000 can be claimed in respect of the health insurance premium which one pays for covering oneself and or the wife and dependent children. You can claim an exemption of Rs 15,000 on premium payments made for parents and a higher deduction of up to Rs 20,000 if one of your parents is a senior citizen. However, in case of company insurance, only the organisation can seek tax relief and not the employee.

Deduction U/s 80D for Mediclaim Premium to Individual, HUF and Senior Citizens

Have an ill dependent to look after? Pay lower taxes

The income tax department understands that chronic illness of a dependent can empty your life savings, and paying full taxes in such cases is burdensome for any taxpayer. Hence, it allows a deduction of Rs 40,000 (Rs 60,000 if the dependent is a senior citizen) per year, under Section 80DDB. Dependants include siblings, children, parents and spouses.

This deduction is available for specific diseases, which include many neurological diseases like dystonia musculorum deformans, aphasia and Parkinson’s disease, hemiballismus, ataxia, motor neuron disease, chorea, haematological disorders, chronic kidney failure, and a few more.

In order to claim this deduction, it is important that the patient should be dependant on the taxpayer, and should not have filed for such a deduction separately.

Deduction under section 80DDB with FAQ

Deduction for medical expenses incurred on disability of Special dependants - section 80DD

In case any of your dependants suffer from a physical or mental disability, you can claim a deduction under section 80DD for an amount of Rs 50,000 (if the disability is less than 80%) or Rs 1 lakh (if the disability is 80% or more).

Dependants for this purpose can include spouse, children, parents, brothers and sisters, or any of them. To be eligible to claim the deduction, you must obtain a certificate in Form 10IA from a doctor with the prescribed qualification and working in a government hospital.

You will have to submit the copy of the certificate in Form 10IA to the payroll department of your organisation.

Scope of Deduction – Deduction can be claimed for dependent parents, spouse, children and siblings. Dependents must not have claimed any deduction for their disability. 

Deductions are permissible in either of the following cases.

a) Costs incurred for medical treatment, training or rehabilitation of a disabled dependent, including amount spent for nursing.

b) Amount paid towards an insurance scheme for the maintenance of your disabled dependent in case of your untimely death.  

Meaning of Disability- Disability means a person suffering from 40% or more of any of the below disabilities. A severe disability condition is  80% or more of the disabilities.

a) Blindness and Vision problems

b) Leprosy-cured

c) Hearing impairment

d) Locomotor disability

e) Mental retardation or illness   

Please Note -

a) Individuals would need to produce a copy of the disability certificate as issued by the central or state government medical board to claim deduction.

b) Insurance policy obtained must be in your name and should be a policy for life. It could pay either an annuity or a lump sum amount for the benefit of the dependent on your death.

c) If the disabled dependent predeceases you, the policy amount is returned to you, and treated as income for the year in which you receive it, thus fully taxable in your hands.

Deduction u/s. 80DD for expenses on medical treatment of disabled dependent

Medical expenses for specified diseases like AIDS, Cancer (Section 80 DDB )

The actual expenditure incurred on treatment of specified disease such as AIDS, cancer, neurological diseases, etc., is deductable to the extent of 40,000 or the actual expense whichever is lower. The limit is increased to 60,000 in case of expense incurred for a senior citizen.

Scope of Deduction – Deduction is applicable for treatment of self, spouse, children, siblings, and parents, wholly dependent on you. 

Diseases covered

a) Neurological Diseases (where the disability level has been certified as 40% or more).

b) Parkinson’s Disease

c) Malignant Cancers

d) Acquired Immune Deficiency Syndrome (AIDS)

e) Chronic Renal failure

f) Hemophilia

g) Thalassaemia            

Point to Note-

1. If you are already receiving any reimbursement for the treatment from your insurance company or employer, deductions cannot be claimed. If you are receiving partial reimbursement, the balance amount can be used for a deduction.

2. A certificate would be required from a specialist working in a government hospital, as proof for the specified ailment.

Deduction for rent paid if you are not availing HRA

You can claim a deduction for rent paid to the extent of 2,000 per month even if you don’t receive HRA from your employer or you are self-employed. This deduction, available under Section 80GG, is subject to some conditions.

To Claim the deduction Neither the taxpayer nor the spouse should own a house at the place of employment. They cannot be self employed, which includes businessmen or professionals. Lastly, the tax payer should not self-occupy his/her house at any other place.

Section 80GG Deductions – For rent paid

Amount paid under National Pension System

“The contributions made by an employee to the NPS qualify for a deduction under 80CCD and the upper limit of 1,00,000 under Section 80C of the Act. However, effective April 2011, employer contributions to NPS up to 10% of the employee’s salary would qualify for an additional deduction.

Foreign taxes

Many individuals take up overseas assignments and as a result earn income both in India and abroad. In the event they face taxation in both countries, they may avail credit of taxes paid overseas while filing their tax returns in India. The Indian tax laws as well as tax treaties signed by India with other countries prescribe provisions for claiming credit of foreign taxes.

Repairs and maintenance of house property

You will never forget to claim deduction of interest on repayment of your home loan, but not many people know that any interest paid on home loan for reconstruction or repair of the “house property” qualifies for deduction of up to 30,000, subject to the overall limit of 1,50,000.

Exemption from capital gains

If you have made any capital gains on the sale of residential house property, such capital gains shall be exempt from tax, provided you purchase a new residential house one year before or within two years after the date of transfer; or you incur expenditure on construction of house property within three years from the date of transfer. Alternatively, to avail exemption, a tax payer may also invest the gains in REC / NHAI bonds, subject to specified conditions.

With most companies closing investment declaration by Febuary end, you still have some time to widen your tax relief. Think, execute and file your investment declaration and seek optimal tax benefits. These deductions, along with the common ones like medical benefits, HRA, home loan EMIs, etc. can help you save a considerable amount of tax every year.

(Republished with Amendments)


49 Responses to “Lesser Known Tax Saving Tips / Deductions”

  1. Sushil Goyal says:

    Hi,

    My parents are having a property jointly. Can pay rent to them and claim HRA ? Both parents are having PAN. Also they have joint account. If they file tax return then how rent income is added – is it added as 50% for both.

    Regards,
    Sushil Goyal

  2. Jitesh R Nair says:

    I have paid interest on Housing Loan for FY-2013-14.I have Certificate from Bank Stating the amount has been repaid towards interest.
    The loan is in name of myself and my wife.In my case my wife is also a co-owner, then I can claim interest only to the extent of my ownership i.e. 50%. (As nothing is mentioned about the share of property).

    I have got to know if me and my wife enter into simple agreement on Rs.100 Stamp paper stating that the Interest for FY2013-14 is paid entirely by me , then I can claim exemption on entire interest.
    Am I correct on this?

  3. karthik says:

    Cuntly am workng n bglr stayng n rented hostel paying rentAlso my parents stayng n chnai which is rented and i am paying rent for that too[Chenai agremnet is in my name oly with lndlrd My question is can i able to claim HRA for both location since both rental agreemts are in my name

  4. santosh says:

    if i pay rent to parents (retired) can i still say in documents that they are my dependents.

  5. Rohit Deora says:

    Very informative…thanks.

  6. Mukund Gattani says:

    Sir,
    Thanks for the knowledge.
    As per the section newly inserted section 80EE interest paid on EMI for house which is under construction can claimed as deduction under the limit provided.

  7. S.R.Bhattacharyya says:

    Renting and Home loan in two different locations: Regarding this, I like to state that the basic condition of claiming deduction of interest and principal of an housing loan EMI is that the completed house must be self occupied and then only the Annual Value will be NIL. If the person resides in a rented house, how he can claim interest as deduction u/s 24b? An early reply is solicitated.
    S.R.Bhattacharyya

  8. Deepak Chandar says:

    Can I gift some amount to my house wife or Minor child for income tax saving?

    Will I be able to get tax exemption for that amount? If yes, then please tell me in which section it will cover to file returns.

  9. Eshwar says:

    Dear Sir,

    My query is currently i stay in self occupied home, for which i am claiming tax benifit of interest and principal. Now I would like to move to rented house and my parents still stay in that house Here I want to claim HRA & Interest component benefit.
    Can you please tell me in how much distance i should take the rented house from my Home, i came to know that distance matter for claiming both benefits.

    Thank you in advance
    Best Regards.

  10. Hemant says:

    Hello Gurus,

    I have one doubt with regards to claiming HRA & Interest paid for home loan. I recently bought flat in joint name (me & my parents), can i show that i am paying rent to parents for the self occupied property and claim HRA & deduction for interest paid?

  11. Ramesh.A says:

    Can you please inform about the tips of tax savings for partner of a firm.

  12. krishna says:

    Can you help me to understand if individual contributions to NPS also qualifies under 80CCD(2)

  13. Shakil ahsan says:

    Can I gift Rs 200000/- to my house wife for income tax saving?
    Please tell me in which section it will cover for return file.

  14. Aman Aggarwal says:

    The above list of tax savings is very useful especially the exemption of the capital gains…
    Thnx a lot. I will be seeking more useful tips.

  15. K.govindarajulu says:

    sir,
    i am 69 nine years old
    my monthly pension 14,255
    adtional i have depoist rs 20lakh on this feb 2013 in sbi
    for 500 days its is around rs.14000.00 per month recived
    how much i have to income tax
    to aviod what would be investment in souces

  16. Rajendra says:

    Sir,

    I have claimed Housing Loan Interest on property(which is Decelered Self occupied but Closed now). Simultaneously, I have Rented a house on Rent and claimed Rent rebate against HRA.
    Now my employer denied to give clear both claim.As per employer remarks –

    “1.As per Income tax Rules, both HRA and Interest on Housing loan of self occupied property can be claimed onlyif the distance between them is 200Km and above. As stated by you above, the distance is only 20Km. Hence you can avail only one benefit. So we cleared HRA and rejected interest on Housing loan.
    2. Still if you want to claim interest on Housing loan, you can show that as Letout Property (Deemed letout) by declaring rent as minimum Rs.2500 permonth”

    Can I have detail help on this?

    Rajendra

  17. Karthik Raghavan says:

    I have a query/clarification to be had. I own a house for which i have taken an EMI. the interest that i pay for the EMI exceeds 1.5L. This was a self occupied house all this while. Now, i am moving to another house (at no rent) and i will rent my property out. This rental income will come in my name. I was told that in case of rented house, i can adjust the interest paid towarsd Home Loan beyond 1.5L for tax benefits. Is this true?

  18. Jimit says:

    Hello,
    I am planning to move to a rented apartment paying 16k per month. I plan to rent my own apartment for 10k per month. “Can I claim HRA and House loan benefit at the same time?”

    Pl Note- My child has lot of friends and lots of amenities in the apartment where I plan to move on rent.
    Moreover, the rented apartment is just 1 km away from own apartment.
    The own apartment is jointly owned by myself and mywife. She is house wife.

  19. venkatesh says:

    I have a doubt whether HRA falls under 1 Lakh saving limit?

  20. Krishna says:

    Hi,
    I and my father jointly purchased a flat in Bangalore. Registration was done on both names and home loan is also on both names.
    Currently i am staying in that house. Can i pay rent to my father and claim HRA + Home loan interest benefit though i am one of the owner of the house ?
    Can my wife pay rent to my father and claim HRA ?
    My father will show rented income in his tax filing.

    – Krishna.

  21. antima gupta says:

    sir,
    i want to know about tax planning in case of HRA and rent paid by me….
    i am doing job in delhi and my family lives in rajasthan on rent. in delhi i recevies HRA and in rajasthan the tax is paid by me also. can i avail tha benefit of HRA as well as rent deduction 80(GG)

  22. Nagaraj says:

    Very good tips for tax saving.

  23. Shilpa Anand says:

    very nice article, i will get some great knowledge to save tax…thanks for sharing..:-)

  24. n.krishnamoorthy says:

    There is a sayiong in Tamil – churning the same dough again and again. So long as the maximum deduction u/s 80C remains at Rs 1 lakh, hundreds of schemes which people think of are of no avail. The limit of Rs 1 lakh is ridiculously low, in these days of high inflation. Unless the Govt amends this section to increase it to at least Rs 3 lakhs, and unless it reintroduces standard deduction for salaried persons upto qa maximum of Rs 50,000, any effort at listing out the types of investment is of no avail. Will the Govt wake up and increase the 80C limit to Rs 3 lakhs and reintroduce standard deduction upto Rs 50,000 in the forthcoming budget. It is too much to hope for.

  25. Priyanka says:

    Thank you so much for sharing such useful information. This gives a good scope for tax planning……

  26. mayur says:

    to adim,

    ur doing awesome job!

  27. SANTOSH B NALAWADE says:

    Resp . sir

    Your information on tax saving is very useful.
    I have question , about HRA refund . my employer dont accept rent receipts , neitehr I have any lease aggrement with my landlord . i am getting

    Rs. 25533/- as HRA , WHAT PROOF I Should submit WITH MY IT Returns to it deptt for refund of my HRA. Also guide me how to file e-return.

    thanking you
    S.B NALAWADE
    8698442977

  28. P Shetty says:

    “If your parents are retired and do not derive any significant taxable income, the amount of rent would be tax free in their hands.”

    Hi,

    Can you please elobrate on the above point. My father is retired and is above 65 age. I am showing Rs 25000 as rent paid to him. He has no other income. Will he be taxed. If so, how much?

    Thanks in advance

    Regards,
    P Shetty

  29. mahendra says:

    thank yu,,very informative
    and i wanted to know about GIFT and giving gift to other person and claiming deduction

  30. Anoop says:

    It is said that if HRA is received then rent can be paid to Parents.

    Can any individual residing in parents home and not in employment pay rent to parents and claim benefit of Rs. 24000/- available U/s 80GG?

    Please reply to above mentioned email id

  31. jayaram says:

    Dear Sir

    how the LTA is caluculated and set off to employee i.e whether it is deducted monthly and pay once in a year or just pay by employer every month to his employee to get exemption

    regards
    jayaram

  32. Murli says:

    For  HRA exemption, can rent be paid to grandparents?

  33. Debasis says:

    The Article alos missed NPS (New Pension scheme) and if the part of one salary if put by Employer he /she can get a benefit over and above 1lacs deduction u/s 80 DD (2) effective from 1st April,2012, please review the same

  34. Debasis says:

    80CCF is nor more valid from the fy 2012-12, please review the article

  35. Adarsh says:

    Sir,

    A very neatly put up article. I am planning to take a home loan for a property that gets completed in 2014. I need some suggestion regarding tax saving with respect to emi. I read “However, you cannot claim interest deduction when the flat is under construction. The interest paid during the pre-construction period can be claimed as deduction in five equal installments starting from the financial year in which the construction is completed.” in your article.Can you please ellaborate on this. I am not able to understand this. Thanks in advance.

  36. SAURABH MODI says:

    I want to know the meaning of salary in case of HRA. As per my knowledge salary means Basic Salary + D.A.(if forms part of retirement benefits). But in the above article Salary for HRA is taken as Basic Salary only. Just need more clarification over the understanding of the term “Salary” used for the purpose of calculating HRA.

  37. Suhas Tondale says:

    Sir,
    If Home Loan is repaid by Loan tranfer to other Bank. Is 80 C deduction is avliable on new home loan taken on same home from other bank.( Transfer of loan done to reduce rate of interest) pls advice.
    Suhas Tondale

  38. CA Jaison says:

    good compilation of info

  39. Sagar says:

    thxs for providing imp info…….

  40. SATYA says:

    @ Vikas: Its not jointly. You and ur wife can claim separately 1.5 lac each, only if you and ur wife are joint owners of the property.

  41. Amit Gupta says:

    Aruna pls note that Rs. 1.5 Lac limit applies to each joint owner and not to co-borrowers.

  42. Aruna says:

    Informative and useful tips.

  43. Vikas says:

    Me and my wife are joint home loan takers. You have written that in case of self occupied, amount cannot exceed Rs.1.5 lakhs for home load interest. My question is is Rs.1.5 lakhs limit is jointly for me and my wife or individually.

    Please guide me 

  44. Ajit Sahu says:

    Really, a good databaase to all.

    It will help in financial planning.

  45. sudhir says:

    sir,

    If a non salaried person house rent, can he allowed to HRA EXEMPTION

  46. Harshit gandhi says:

    Really usefull tips….Thanks..keep it up…:-)

  47. captainjohann says:

    A very informative and useful article

  48. himmat gangvani says:

    i like all the matter sent by you via mail i will suggest my some other friends to join with you.

    thanks for providing such a vital knowledge

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