Tuesday, March 24, 2009


Thinking beyond Section 80C for saving taxes in India??
Individuals, who need to save more to save their tax money more than what section 80C allows for, can opt for other options:

a. Home loan:
Interest payments towards home loans of upto Rs 150,000 pa are eligible for deduction under Section 24.
b. Medical insurance: An individual who pays medical insurance premium for self or spouse/dependent children is allowed a deduction of upto Rs 15,000 pa under section 80D.
An additional deduction of up to Rs 15,000 pa is allowed for premium payment made for parents. In case the parents are senior citizens, then the maximum deduction allowed is Rs 20,000 per year.
c. Donations: Subject to the stated limits, donations to specified funds/institutions are eligible for tax benefits under Section 80G.
d. Education loans: The entire interest of an educational loan is eligible for deduction under Section 80E. The loan can be for self, spouse or child from an approved charitable institution or a notified financial institution.
e. Restructure the salary
Restructuring the salary and including certain components can go a long way in reducing the tax liability. Unlike eligible investments which lead to an additional cash outflow, restructuring the salary is a more 'efficient' means of claiming tax benefits. The following can form a part of one's salary structure:
Food bills are exempt from tax up to Rs 60,000 per year.
Medical expenses which are paid back by the employer are exempt up to Rs 15,000 per year.
House Rent Allowance (HRA) Since housing is one of the fundamental needs for us, the government treats it sympathetically, and gives us various tax breaks towards it. To claim the benefit you need to provide rent receipts and rent agreement
Transport allowance is exempt upto Rs 800 per month.
Leave Travel Allowance (LTA) can be claimed by the employee and his family, for two journeys in a block of four calendar years commencing from the calendar year 1986. The current block is calendar years (January to December) 2006 to 2009. Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, it may be carried forward.
f. Claim tax benefits on house rent paid
Salaried individuals can claim rent paid by them for residential accommodation, if HRA doesn't form part of their salary. This deduction is available under Section 80GG and is least of the following:
25% of the total income or,
Rs 2,000 per month or,
Excess of rent paid over 10% of total income
This will only be applicable if the taxpayer or his spouse or minor child does not own a residence in the location where the taxpayer resides or works.
g. Opt for a joint home loan
As discussed earlier, the principal repayment on a home loan is eligible for a deduction of up to Rs 100,000 pa and the interest paid is eligible for a deduction of up to Rs 150,000 per year.
In cases where the home loan is for a substantial sum, it is not uncommon for the interest and principal repayment to exceed the stated limit. To ensure that the tax benefit is optimally utilised, an individual can consider opting for a joint loan with his spouse or parent or sibling.
This will ensure that both the co-owners can claim tax deductions in the proportion of their holding in the loan. The co-owner falling in the higher tax bracket should hold a higher proportion of home loan to ensure that the tax benefits are maximized.

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