8 Tax Saving Options for Taxpayers beyond Section 80C in India
When it comes to making tax saving investments, most of us are well versed with the ins and outs of Section 80C of the Income Tax Act, 1961. However, there is a limit of Rs. 1.5 lakhs on the tax savings that can be availed through the popular 80 C investments such as ELSS, EPF, VPF, PPF, life insurance premium, tax saver FD and so on.
The good news is that the IT Act does provide individuals a few additional options for saving on taxes payable which are beyond the purview of Section 80C instruments.
The following are some of the additional investment options that you can consider in order to share less with the taxman.
Medical Insurance (Section 80 D)
All surveys of the Indian insurance industry conducted till date have reached an inescapable conclusion – the average Indian is underinsured when it comes to life insurance and most often uninsured when it comes to health insurance. Though some salaried employees are often part of group health insurance benefits provided by their employer, such insurance plans are not tax saving schemes as they do not carry any tax benefits and cease to be in effect once the employee leaves the organisation. With the skyrocketing medical costs of the present day, it makes sense to purchase a separate health insurance policy.
Health insurance premium payments provide tax benefits under Section 80 D over and above the 80 C limit. The maximum deduction you could claim for payment of health insurance premium that covers you, your spouse and dependent children is capped at Rs. 25000. However you can claim an additional tax exemption of up to Rs. 30,000 in lieu of health insurance premium payments for senior citizen parents.
Medical Expenses (80 DD & 80 DDB)
The 80 DD subsection provides tax exemption on medical treatment costs incurred for self, spouse, dependent children and/or parents. The maximum exemption currently allowed under this section is Rs. 1.25 lakhs however this is only applicable in case the tax payer, spouse or dependent children have severe disabilities.
The 80 DDB subsection provides you with tax exemption in case of medical expenses incurred towards treatment of specific diseases including but not limited to chronic renal failure, various cardiovascular illnesses and cancer. The annual exemption cap in this subsection is Rs. 40,000, however, a higher deduction amount of up to Rs. 80,000 can be claimed by super senior citizens i.e. those over 80 years of age.
Home Loan Interest Payments (Section 24 (b) & 80 EE)
Home loans have long been considered as a preferred tax saving option in India partly because it provides tax benefits while allowing borrowers to create an asset. A portion of this tax benefit – the principal repayment portion benefit – is included in Section 80 C but the tax benefits of interest payout are featured in a different section namely Section 24 (b). In case of self occupied house or a house to be let out, this benefit is capped at Rs. 2 lakhs annually, no matter what their applicable income tax slab or loan value. Earlier, borrowers of a home loan for a non self-occupied house (legally considered as rented out property), could claim exemption on the entire amount paid as home loan interest. But as per an announcement made in the Budget 2017, from AY 2018-19 onwards, a cap of Rs. 2 lakhs annually has been into effect for interest payouts on home loan of second house.
The tax saving benefit under Section 80 EE is limited to individuals making interest payments on a home loan for their first house. The maximum deduction that an individual can claim under this section is Rs. 50,000 which is in addition to the 80 C and 24 (b) benefits mentioned earlier. This benefit can however only be availed if all the following conditions are met:
- Loan disbursed between 1st April 2016 and 31st March 2017
- Total loan sanctioned is less than Rs. 35 lakhs
- Value of house being purchased is less than Rs. 50 lakhs
- The property in question must be the only one in the individual’s name.
Education Loan Interest Payment (Section 80 E)
As the cost of higher education in India as well as abroad has increased, it has become near impossible for many parents to fund it through their savings only. In this regard, an education loan is the most viable alternative out there and what’s more there are tax benefits attached to it.
Under Section 80 E, you could claim tax exemption on the whole amount paid as education loan interest for yourself, spouse or your dependent children. However, there is, at present, no tax benefit on the payment of the principal amount of the education loan.
Tax Savings on Rent Paid (Section 80 GG)
Section 80 GG is a relatively new tax exemption section available to individuals who do not have a separate house rent allowance (HRA) component in their salary. This exemption features a different calculation from the typical HRA calculation. The lower of the following three options is chosen as the tax exempt amount under this section:
- 5000 per month
- 25% of total income or
- Rent paid in excess of 10% of total income.
Donations to Specific Institutions and Funds (Section 80 G & Section 80 GGA)
Donations made by you to specific religious entities and certain funds such as Prime Minister’s Relief Fund is subject to tax exemptions of 100%, 80% or 50% under Section 80 G. The list of these qualifying institutions and funds can be obtained from the IT Department website however the maximum deduction allowed under this section is up to 10% of the gross adjusted total income of the tax payer.
Section 80 GGA provides you with tax exemptions on donations made to specific government-approved institutions such as colleges, universities and research institutes. Qualifying donations can only be made by salaried employees as self employed businessmen and professionals cannot claim this tax exemption benefit. Another stipulation for availing this deduction is that donations of Rs. 10,000 or more can qualify for exemption only if such donation has not been made in cash.
Donations to Political Parties (Section 80 GGC)
In case you have made a donation to a political party, your contribution could provide you with tax exemption under Section 80 GGC. At present there is no limit on the amount that you can claim as exemption however, such donations will not qualify for exemption if made in cash.
Savings Account Interest Earned Exemption (Section 80 TTA)
This is probably the least well known among various exemptions that are applicable to almost all tax payers. Under Section 80 TTA, interest earned by you from savings accounts and fixed deposits is completely exempt from income tax up to a maximum limit of Rs. 10000 annually. Any amount above this threshold amount is automatically deducted as TDS refund and may be claimed as refund at the time of tax filing (subject to certain conditions).
The Indian Tax Code is a mammoth document with various sections and sub-sections that cover all aspects of taxation. Personal tax in the form of Income Tax is just a small portion when compared to the tax code in its entirety and the tax savings section is even smaller. The above tax exemption/saving options are just a snapshot of the possible exemptions and cannot be considered as a complete list that the average individual can avail. However, the ones mentioned above do provide a good starting point for those intending to maximize their tax savings beyond Section 80C for AY 2018-19.