Take A Break: Rs 40,000 Deduction Allowed For Expenditure On Treatment Of Cancer & Neurological Disorders
TAXES may truly be as certain as death. Still, around this time every year people start looking for ways to lower their tax bill. After all, there's nothing more demoralising than watching your hard-earned income get slashed by taxes. All said and done, however, every year lakhs of taxpayers overpay their taxes just by overlooking the breaks they deserve. The prime reason being that tax claims and deductions have been the most cumbersome process for an individual, and one is more likely to forget some breaks while making a claim.
You can, therefore, cut your tax bill just by claiming all the breaks you deserve. Here we take a look at some of the most overlooked tax breaks:
INTEREST ON LOAN FOR HIGHER EDUCATION:
It is common for most of the taxpayers to claim deduction under Section 80C of the IT Act for tuition fees paid for admission of their children to any university, college or school. However, people are generally not aware that Section 80E of the IT Act provides for a deduction of interest on loan taken by an individual for availing higher education of their spouse or children. Effective April 1, 2009, this section also includes a legal guardian of a student.
As education is getting costlier day by day and people are availing loans to fund education, allowing interest as a deduction is a good tax benefit for parents/ legal guardians who are generally financing the higher education of their dependents. Therefore, if you have taken a loan for higher education, don't forget to make your claim. Also remember that the deduction benefit on interest is allowed for a maximum eight years, or till the interest is fully paid.
REPAIRS & INTEREST ON HOUSE PROPERTY:
An adhoc deduction of 30 per cent is allowed from rental income for expenditure incurred on repair and maintenance of house property. Further, if an individual lets out his property, he can claim a deduction for the interest amount up to a maximum of 1.5 lakh as deduction for self-occupied property, whereas if the property is rented the entire interest paid is allowed as a deduction.
Let us take an example. Ajay, a salaried employee, takes a home loan for self-occupied property and pays an interest of 2,50,000. Ajay can claim a deduction of 1,50,000 if he is occupying the house for his own residence. However, if he had decided to let out that property, he will be eligible to claim the entire amount as deduction from the rental income.
DEDUCTIONS IN RESPECT OF RENT PAID:
In case an individual is living in a rented accommodation, he can claim deduction towards the rental payment under Section 80GG of the IT Act. The quantum of deduction is 2,000 per month or 25 per cent of total income (whichever is less), provided the individual does not get any house rent allowance.
CHARITABLE DEDUCTIONS:
Under Section 80G of the IT Act, an individual can claim deduction in respect of donations made to certain funds, charitable institutions and so on. The only condition being that such donations must be made to registered institutions only. There is no restriction on the amount of charity. The tax benefit, however, will be restricted to a maximum of 10 per cent of your gross total income.
'Taxpayers normally are unable to claim such deductions simply because they tend to lose the receipts by the end of the year. So next time if you make any donation to a charitable institution, don't forget to keep the receipt in a safe place.
FOREIGN TAXES PAID:
Foreign tax credits may be claimed by an individual in respect of doubly-taxed income which is taxed in India as well as in a foreign country provided the conditions as prescribed under the Double Taxation Avoidance Agreement between India and the foreign country are satisfied. Further, even in the absence of an agreement between India and the foreign country, credits can be claimed under the IT Act, subject to specified conditions.
MEDICAL INSURANCE PREMIUM:
Deduction is available under Section 80D of the IT Act on account of premium paid by an individual for the medical insurance of self and family members. An individual can claim deduction for payment of health insurance premium of 15,000 if the insurance is for himself, spouse or dependent children. He will get an additional deduction of 15,000 if the contribution is made for his parents. And an additional deduction of 5,000 is provided if the contribution happens to be for a senior citizen.
Let's simplify this by way of an example. Sameer Kapur (age 40) has taken health insurance policies for his wife, two children and himself, and pays a total premium of 30,000. He also has a policy for his father who has just celebrated his 66th birthday for which the premium amount is 21,000. Under Section 80D, he can claim a deduction of 15,000 for insurance premium towards spouse, children and self and 20,000 for his father's insurance premium. Thus, the total deduction available to Sameer is 35,000 in this case.
PER DIEMS:
We sometimes get allowance for daily expenses (per diems). These allowances are exempt from tax under Section 10(14)(i) of the IT Act read with Rule 2BB(1)(b) of the Income-Tax Rules, 1962, if the same are actually incurred on ordinary daily charges while the employee is on tour and absent from his normal place of duty.
PERSON WITH DISABILITY:
The framers of the I-T Act have been given special consideration to special people with disabilities. Under Section 80U of the I-T Act, an individual with certain disability is allowed a deduction of 50,000 and with severe disability of 1,00,000.
Further, under Section 80DD of the IT Act, an individual, who incurs expenditure on medical treatment of a dependent with disability, is allowed a deduction up to 50,000 and with severe disability up to 1,00,000.
MEDICAL TREATMENT:
The government wants its people to be healthy. Thus, to assist the common man in financing his or his family's medical bill, expenditure incurred on medical treatment of specified diseases like cancer, neurological disorders etc, deduction to the extent of 40,000 under Section 80DDB of the IT Act is allowed, provided prescribed conditions are met. Where expenditure is incurred in respect of a senior citizen, deduction is available to the extent of 60,000.
To quote an example, suppose Shruti spent an amount of 1,00,000 on treatment of her mother's throat cancer. On being advised by her tax consultant, Shruti obtained a certificate (in form 10-I) from a prescribed authority and was able to claim a deduction of 40,000 from her taxable income. However, had her mother been more than 65 years of age (senior citizen), she could have claimed a higher deduction of 60,000.
PROFIT ON SALE OF PROPERTY:
It would also help to remember that capital gains arising from the transfer of residential property is exempt from tax in the hands of individual under Section 54 of the Act to the extent expenditure is incurred on the purchase of another residential house within a period of one year before or two years after the date of transfer, or expenditure is incurred on construction of a house property within a period of three years after the date of transfer.
Thus, with so many tax incentives already on platter, people have a reason to cheer irrespective of what Budget 2011 has to offer. The IT Act has in store a lot of tax-saving mantras for all of us and it is upon us to excavate them and increase our take home income.
