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Alternative Tax-Saving Routes

Given the rising expenses on healthcare, education and rental housing, individuals can go beyond Section 80C to avail tax exemptions


   THE Section 80C of the Income-Tax Act is one of the most popular avenues for the salaried individuals devising tax planning strategy. The section allows tax deduction of up to Rs 1 lakh by investing in approved instruments and hardly anyone misses this opportunity. However, given the rising expenses on healthcare, education and rental housing; individuals can go beyond the Section 80C and avail tax exemptions. Here is a sneak preview.

MEDICAL EXPENSES

If there is an expenditure that can indeed burn a big hole in one's pocket, it is the medical expenditure. No wonder that the Income-Tax Act has more than one provisions to offer relief to those incurring these expenditures; notwithstanding that even these appear to be quite inadequate as compared to the actual medical costs one usually tends to incur these days.

SECTION 80D

The amount of premium paid by an individual is eligible for deduction from the total taxable income under this section. The maximum amount of deduction that can be availed under this section currently is Rs 15,000 if the policy covers self, spouse and/or dependant children and an additional Rs 15,000 for the policy purchased exclusively for dependant parents. Thus, an individual can claim a maximum of Rs 30,000 as deduction from the total taxable income. In case the dependant parents are senior citizens (having attained 65 years of age), then the deduction rises to Rs 20,000 for the medical premium paid for their policy alone.


   The individual can thus claim a total of Rs 35,000 as deduction from the taxable income. Interestingly, if the individual himself and/or his spouse are also senior citizens, they shall also be entitled to a maximum deduction of Rs 20,000 instead of Rs 15,000. If such an individual also pays medical premium for dependant parents, who are also senior citizens, the maximum allowable deduction for such an individual shall thus be Rs 40,000 per annum.

SECTION 80DD

Expenditure incurred by an individual for treatment of dependant spouse, children, parents, brothers or sisters; suffering from following disabilities is eligible for deduction from the total taxable income under this section: Autism: A condition of uneven skill development primarily affecting the communication and social abilities of a person. Celebral Palsy: A medical condition that result in nonprogressive condition of a person and characterised by abnormal motor control posture resulting from brain insult or injuries occurring in the pre-natal, peri-natal or infant period of development. Mental retardation: Condition of arrested or incomplete development of mind, specially characterized by subnormality of intelligence can be claimed as a deduction under this section.


   The amount admissible as deduction under this section is Rs 50,000 per annum or the actual amount expended for the treatment of such a dependant, whichever is lower. If the disability is reckoned to be of a severe nature (80% or more) then the maximum permissible amount of deduction shall be Rs 75,000 per annum. (The same has been enhanced to Rs 1 lakh a year with effect from April 1 2010) This deduction will however not be available for a dependant who has claimed any deduction under section 80U of the I-T Act.

SECTION 80U

Where an individual tax payer himself has been certified by a medical authority to be suffering with any of the above disability, a deduction of Rs 50,000 per annum and if the disability is of a severe nature, a deduction of Rs 75,000 a year (Rs 1 lakh w.e.f April 1 2010) can be claimed from the total taxable income under section 80U of the I-T Act.

SECTION 80DDB

Expenditure incurred for medical treatment of self or dependant spouse, children, parents, brothers or sisters with respect to specified diseases being; Neurological diseases, such as dementia, dystonia musculorum deformans, motor neuron disease, ataxia, chorea, hemiballismus, aphasia and parkinsons, diseases where disability level has been certified to be 40% and above. Tax payers with dependents family members suffering from malignant cancers, AIDS, chronic renal failure and hematological disorders, such as hemophilia and thalassaemia are also eligible for deduction under this section. The maximum admissible deduction is, however, only Rs 40,000 per annum. In case of the dependant patient being a senior citizen, the maximum amount of deduction shall be Rs 60,000 a year.

EDUCATIONAL EXPENSES

As far as expenditure on education is concerned, deduction in tax is available only with respect to repayment of interest on loan taken for higher education under Section 80E of the I-T Act. Any individual who takes loan from a recognised financial institution to finance the higher education for self, spouse or children and with effect from April 1 2010 also a student for whom the individual is a legal guardian, shall be eligible to claim deduction for the amount of interest paid on such loan. This deduction is available for a maximum tenure of eight consecutive years starting from the year in which the individual begins to pay such interest. As the section does not specify any limit on the amount of deduction that can be claimed, the entire actual amount paid as interest on loan shall be admissible for deduction.


   Earlier this section was restricted to loan taken to finance full-time graduate or post graduate course in engineering, medicine, management or post graduate course in applied sciences or pure sciences including Mathematics and Statistics. However, from April 1 2010, the scope of this section has been extended to include any course of study pursued after passing senior secondary examination or equivalent.

HOUSING RENTALS

With increasing property prices and rentals thereon, the cost of accommodation has gone up substantially in cities across the country. While those who have purchased a house financed by loan, can claim an exemption on the amount of interest paid on such loan (up to a maximum of Rs 1.5 lakh), others who stay in rental accommodations can seek tax relief in Section 80GG of the I-T Act.This section is applicable either to a self-employed individual or an employee who does not receive house rent allowance (HRA) from his employer. (All salaried employees in receipt of HRA can claim an exemption on the accommodation rentals under Section 10(13A) of the I-T Act.)The deduction under Section 80GG can be availed provided the individual, his spouse or minor children do not own any residential accommodation at the place where they reside and are employed or carry out their business or profession. The deduction admissible under this section shall be minimum of the following — Rs 2,000 per month or 25% of the total income or the actual rent paid in excess of 10% of the total income.

 

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