Friday, March 22, 2013

Are you utilizing all your Tax Saving Options?

March is almost over and we are in the last few days of the Financial year where people are running around to save tax. Everyone knows about Section 80C which gives you tax relief if you invest in qualified instruments like ELSS Mutual Funds or NSC or PPF etc. Similarly people use their home loans, medical expenses etc as well to reduce their tax liability. A surprising fact that I learnt a few weeks ago while interacting with a few of my friends back in India was that, beyond Section 80C, people dont really know about the other tax saving options.

The idea behind this article is to throw some light on the various sections under which we can reduce our tax liability...

Section 80D - Medical Insurance for Self & Dependents

We all know about Medical Insurance but many of us dont really have such insurance policies. To motivate people to get insured, the government has provisions under section 80D to help you reduce your tax liability if you have such policies. The premium amount, which is paid for medical insurance policy for self and family members to protect them from sudden medical expenses, comes under this section. The maximum amount allowed for exemption annually for self, spouse and dependent parents/children is Rs. 15,000. In case of a senior citizen, the maximum amount extends up to Rs. 20,000. If you are paying the premium for your parents (whether dependent or not), you can claim an additional maximum deduction of Rs. 15,000.

Section 80DD - Medical Treatment of a Physically Disabled Dependent

Under Section 80Dd, Individuals who have physically disabled dependents and incur expenses in their maintenance can claim tax exemptions. The tax assessee must have incurred the expenses for the medical treatment, training & rehabilitation of a disabled dependent OR must have deposited the amount to LIC OR any other insurer for the maintenance of the disabled dependent.

Here, the dependent should be none other than your spouse, children, parents or sibling. If the person is suffering from 40 per cent of any disability, a fixed sum of Rs. 50,000 can be claimed in a year. Similarly, if the disability is 80 per cent, the fixed sum goes up to Rs. 1,00,000 per year. A certificated issued by the medical authority treating the disabled dependent has to be provided as proof in order to claim exemption under section 80DD.

The following disabilities are eligible under Section 80DD:
• Blindness
• Low Vision
• Leprosy-cured
• Hearing impairment
• Locomotors disability
• Mental retardation
• Mental illness.

Section 80DDB - Medical Treatment of Self/Dependents for Certain Diseases:

If an individual has incurred expenses for the medical treatment for self or for his/her dependents for certain diseases, he/she can claim tax deduction of up to Rs. 40,000 (or the actual amount paid, whichever is lower) under Section 80DDB. For Senior Citizens the amount is up to 60,000. Deduction is applicable for treatment of self, spouse, children, siblings, and parents, who are wholly dependent on you.

Diseases covered under Section 80DDB

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

Most major diseases are covered under this section. To claim a deduction under this section, you need to submit a medical certificate from the doctor who is treating the disease.

Section 80E - Education Loan:

With the liberalization of the banking rules for education loans, students in India are able to pursue higher education easily by financing their own education. Though we are just repaying the money we got from the bank as part of the educational loan repayment, the government is providing tax benefits under Section 80E to individuals who are repaying their education loans. The loan could be on your own name or for your wife or your children or minors for whom you are the legal guardian.

This deduction is applicable for a period of eight years or till the interest is paid, whichever is earlier. Any full-time educational course can be used for exemption under this section. However, part-time courses do not qualify under this section.

There was an article titled "Pay for your Education through an Education Loan" which covered Education Loans and the finer details of the same. I would suggest you Click Here and learn more about it.

Section 80G - Donations to Charitable Institutions:

Many of us donate money to charitable institutions and NGO's regularly. Though helping out the needy is a good deed and we usually dont expect anything in return, the government is trying to motivate citizens to help out the needy and thereby is providing tax relief to contributions/donations we make to charitable institutions. The exemption can be up to 50% or 100% of the donation made. There was an article titled "Section 80G of the Indian Income Tax" in our blog that covered this section in detail. I would suggest that you visit that article by Clicking Here and learn more about it.

Section 80GG - Relief for House Rent:

If an individual residing in a rented house does not receive any kind of HRA as part of their salary, he/she can claim a deduction under Section 80GG. A point to note here is that, if the individual or his/her spouse or their children own any residential property (House) in India or Abroad, they cannot claim exemption under Section 80GG.

The Relief/Exemption for tax purposes is the lower of the following 3 numbers:

a. Rs. 2000 per month or
b. 25% of Annual Income or
c. Amount of Rent paid in excess of 10% of Annual Income

So, for example if your Rent is Rs. 3000 per month and your Annual Salary is Rs. 1,50,000/- the calculation will work as follows:

a. Rs. 2000 per month = Rs. 24,000/- for one year
b. 25% of 1.5 lakhs = Rs. 37,500/-
c. Amount in excess of 10% of annual income = Annual Rent - 10% of annual income = 36,000 - 15,000 = Rs. 21,000/-

In this case your exemption will be Rs. 21,000/- per year as per option c.

Section 80GGC - Donations Made to Political Parties:

Any contribution made by an individual to a political party (registered under section 29A of the Representation of the People Act, 1951) is fully deductible under Section 80GGC of the Income Tax Act.
There is actually no upper limit here and any amount you contribute can be fully claimed for tax exemption. However, the party must be a registered political party of India otherwise this section cannot be utilized. Also, donations made can be used for exemption only once and during the same financial year only. Donations made last year cannot be used this year even if you missed claiming them last time around.

Section 80U - Exemption for Disabled Individuals:

Income tax law gives a special deduction to the persons who suffer from some kind of disability. This comes under section 80U of income tax act in which the persons who are suffering from some kind of or total disability has the special relief in income tax act.

The Term disability as per Section 80U refers to any of the following illnesses:

1. Blindness
2. Low vision
3. Hearing impairment
4. Leprosy
5. Moving disability
6. Mental retardation
7. Mental illness
8. Autism
9. Cerebral palsy
10. Multiple disabilities (more than 1 disability)

The deduction provided is flat Rs. 50,000, irrespective of the expense incurred if the disability is at least 40%. If the disability is severe (80% or more), the deduction can be up to Rs. 1 lakh. One needs to provide a copy of all the certificates issued by a medical authority in order to avail this benefit. A point to remember that, if the disability is less than 40%, this section cannot be used for Tax Exemptions.

80CCG - Rajiv Gandhi Equity Savings Scheme – RGESS:

The Rajiv Gandhi Equity Savings Scheme – RGESS is a new scheme introduced this year by our finance minister which offers tax exemptions under Section 80CCG for investors who invest up to Rs. 50,000/- in qualified shares. This benefit is only available if your total income for the year is less than or equal to Rs. 10 lakhs. There was an article titled "Rajiv Gandhi Equity Savings Scheme – RGESS" in our blog last year which explains in detail about the same. I would suggest you revisit the article by Clicking Here and learn more about it.

As you can see, there are many other sections apart from Section 80C that can help you avail tax benefits. If you qualify to use any of the sections elaborated above, it would be a good idea to revisit your tax planning and utilize the benefits available to us.

I have also published a book on Indian Income Tax which you can buy for a small fee. Check it out here:

Happy Tax Planning!!!

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