Tax Saving Options in 2017-18
Knowledge about income tax deductions is not only helpful for individuals but also for Companies, Individual firms and a Hindu United Family (HUF).
You would need to know what kinds of expenses and investments that you make are subjected to income tax deductions so as to claim them at the time of filing income tax returns.
A sound knowledge about clauses that specify the various ways you can save paying taxable income legally will be beneficial so as to pay just the right amount of income tax and save the portion of your income that falls under the section specifying the kinds of Income Tax Deductions.
Here we will discuss the useful income tax deductions elaborately specified under various sections of Income Tax Act and how they would benefit you saving a part of your taxable income legally for the year 2017-18.
1. Tax Deductions for Investment (Section 80C): Section 80C of Income Tax Act specifies a chunk of options you may choose to invest in so as to subject your taxable income to deductions. The tax exemption limit under this section is Rs 1,50,000. In simple terms, one can claim a deduction of almost Rs. 1,50,000 from total taxable income under this section.
Listed below are the expenses and investments you may make to save a part of your taxable income as you get refunded when you file your income tax returns:
- Investment in PPF
- Employees share of PF contributions
- Tax saving mutual funds
- Five-year deposit schemes
- Children’s tuition fees
- National Savings Certificate (NSC)
- Life insurance premium payment
- Senior Citizens LIC Scheme
- Subscription to home loan accounts scheme
- Subscription to equity shares or debentures
- Contribution to LIC annuity plan
- Subscription to NABARD Bonds.
2. Deductions for Interest income on Savings account (Section 80 TTA): This section of the Income Tax Act specifies that a savings account holder can claim deductions on the interest income from savings bank account up to Rs. 10,000. The amount of interest received should be included in other incomes in the first place so as to claim deductions as you file your income tax returns.
The claim can be filed on the total interest received the amount or a maximum of Rs. 10,000 whichever is less.
It is to be noted that this deduction is only valid in case of interest income received from a savings account and not in case the interest is credited from recurring deposits, fixed deposits or corporate Bonds.
3. Deductions for house rent paid provided HRA is not received (Section 80GG): The ones paying house rent without an HRA shall gain the benefit of income tax deductions while filing tax returns under this section provided that the taxpayer, his spouse or minor child does not own residential accommodation at the place of employment.
This deduction is also not applicable in case the taxpayer has a self-occupied property at any other place.
The income tax deductions that are available are (a) 25% of total income (b) rent paid minus 10% of total income (c) Rs. 5,000 per month.
4. Deductions on Premium paid for Medical insurance (Section 80D): This section of Income Tax Act specifies that the taxpayer can claim a deduction on his taxable income provided he pay a medical insurance premium for self-insurance, insurance of spouse or minor/dependent children. The maximum deduction one can claim for is generally restricted to Rs. 25,000.
However, the maximum limit amounts to Rs. 30,000 in case the individual or the spouse is a senior citizen (60 years or above).
Moreover, on insurance of parents (father or mother or both) taxable income is subjected to an additional deduction of Rs. 25,000 in case the insured is less than 60 years old and Rs. 30,000 if parents are above 60 years of age.
Also, medical expenses incurred on super-senior are subjected to deductions up to an additional Rs. 30,000.
5. Deductions for investments made under Equity saving scheme (Section 80CCG): Those who have invested in listed shares or listed mutual funds can get the benefit of deductions on taxable income under this section. Also, known as Rajiv Gandhi Equity Savings Scheme, the scheme allows a deduction of 50% of the amount invested up to a maximum of Rs. 25,000.
However, only first-time investors are eligible for this scheme. Also, the investment has a lock in period of 3 years from the date of acquisition.
6. Deductions for a person suffering from physical disability (Section 80U): This deduction is not based upon expenses incurred and is rather a fixed deduction by nature. Any person who suffers from physical disability including blindness and mental disorder can claim deductions up to Rs. 75,000 while filing tax returns. In case of severe disability, the deduction amount goes up to Rs. 1,25,000. A valid medical certificate from a Government hospital needs to be produced for this purpose.
7. Deductions on interest on Educational Loans for higher studies (Section 80E): A deduction is allowed on the interest of loan one has to pay on an Educational loan. There is no restriction on the amount of This option is valid up to a maximum of 8 years or until the loan is paid off, whichever is earlier
8. Deductions for contribution to pension funds (Section 80CCD): Such deductions are allowed to the ones contributing to their pension funds accounts. The deductions allowed are (a) 10% of salary in case the individual is an employee (b) 10% of gross total income in case the individual is self-employed or (c) Rs. 1,50,000 whichever is less.
For 2017-18, maximum deductions for self-employed employees are allowed at the rate of 20% on gross income instead of 10%.
9. Deductions for Rehabilitation of dependent relative (Section DD): Expenditure incurred on treatment including nursing, rehabilitation or training of handicapped dependent relative are subjected to income tax deductions under this section. Deductions shall also include payment to any specific scheme taken up for the maintenance of handicapped dependent relative.
The maximum amount that can be claimed for deductions vary.
In case the disability is 40%-80%, a fixed deduction of Rs. 75,000 is allowed.
In case the person is severely disabled (80% or more) the deductions go up to a fixed amount of Rs. 1,25,000.
10. Deductions for a donation towards social causes (Section 80G): There are various options under section 80G that qualify as deductions from taxable income up to a complete 100% or 50%.
This section does not apply wherein a donation has been granted in the form of cash backs over Rs. 10,000.
From FY 2017-18, only donations of Rs. 2,000 or below made via any instrument and not cash shall qualify as deductions. A donation exceeding Rs. 2,000 shall not be subjected to tax deductions.
11. Deductions with respect to any income by the way of Royalty or Patent (Section 80RRB): For a patent, an income of maximum 3 Lakhs by the way of royalty for a payment registered before 01.04.2003 shall be subjected to income tax deductions. The tax deductions shall be for 3 Lakhs or the amount received whichever is less. A certificate is needed to be produced by the taxpayer in the prescribed form duly signed when claiming for deductions.