9 tax saving options besides section 80C
Besides section 80C there are other ways to legally reduce the amount of tax you pay. Read on to know how you can further lower your tax liability.
A lot of us know about section 80C and its importance in reducing tax liability. But there are other ways to reduce the amount of tax you pay. Section 24, for example, will allow you a deduction based on the interest you are paying on your home loan.
Know your tax slabs
The amount of tax you have to pay depends on your yearly income. If you are under 60 years of age and your annual income is less than Rs2 lakh, you are exempted from paying tax. However, if you earn over Rs2 lakh and up to Rs5 lakh a year, you have to pay 10% on the amount you earn above Rs2 lakh. If you earn between Rs5 lakh and Rs10 lakh a year, you are required to pay 20% on any sum exceeding Rs5 lakh. All earnings over Rs10 lakh are charged at 30% when paying taxes.
The maximum that can be deducted from your taxable income under section 80C is Rs1 lakh. It makes sense to invest in the public provident fund (PPF) to the limit – Rs1 lakh – since it comes under the exempt-exempt-exempt (EEE) system, which means it is exempt from tax at the time of investment, during the period of investment as well as when it matures.
The interest you earn from the PPF is not taxable. So even though it offers a lower interest rate than a standard bank fixed deposit (FD), you earn more in total returns than the bank FD at the end of the term, since bank FDs follow the EET (exempt-exempt-tax) system and returns are taxable. See the table below.
|Initial investment||Interest rate||Amount after 5 years||Interest amount||TDS @ 10%||Total returns||TDS @ 30%||Total returns|
|PPF (EEE)||Rs1 lakh||8.7%||Rs1.51 lakh||Rs51,000||Nil||Rs1.51 lakh||Nil||Rs1.51 lakh|
|Bank FD (EET)||Rs1 lakh||9%||Rs1.53 lakh||Rs53,000||Rs5300||Rs1.48 lakh||Rs15,900||Rs1.37 lakh|
Besides section 80C there are other tax-saving options which can work to your advantage.
Interest component of home loan (section 24)
The deduction can go up to Rs1.5 lakh if you are living in the house for which you have taken a loan or if you live or work in another city. However, there is no maximum limit to the deduction you can claim if the property is not self-occupied.
Rajiv Gandhi Equity Savings Scheme (section 80CCG)
Under this scheme, you can claim a 50% tax break, subject to a few conditions. These are: your annual income must be less than Rs10 lakh; you must invest in IPOs, certain eligible mutual funds, exchange-traded funds or shares listed on the BSE 100 or CNX 100; it should be the first time you have invested in shares, and you can only claim this deduction once in your life.
Health insurance (section 80D)
Premiums up to Rs15,000 are permissible for a tax deduction. If you or your spouse is a senior citizen, this goes up to Rs20,000. In addition, if you are paying the premium for your parents’ health insurance, you can claim Rs15,000 as an additional deduction.
Medical treatment (section 80DDB)
A tax break of up to Rs 40,000 can be claimed if you have paid for any medical treatment for yourself, your spouse, your children, your parents or your siblings. If you are a senior citizen, the amount you can claim goes up to Rs60,000.
Interest on education loan (section 80E)
Under section 80E, the interest on an education loan is completely exempt from tax. You can claim this deduction only on full-time graduate or postgraduate courses or on vocational studies after the senior secondary exam, and up to a maximum of 8 years.
Donations (section 80G)
You are eligible for a deduction of part of the amount (if not the whole amount) paid as a donation to a trust, charity or an approved educational institution.
House rent allowance (section 80GG)
If you rent accommodation but aren’t given house rent allowance (HRA) you can claim a deduction. How much you can claim is the least of the following three: Rs2,000; 25% of your total income; or excess rent paid over 10% of your salary.
If you receive HRA from your employer, the deduction would be 50% or 40% of your salary (depending on whether you live in a metro or not, respectively), or the actual rent you are paying minus 10% of your salary.
Political/electoral donations (section 80GGC)
Contributions to electoral trusts or political parties qualify for a complete tax deduction and there is no limit on how much you can claim.
Disease/disability afflicting a dependent (section 80U)
You can claim a deduction of Rs50,000 if a dependent suffers from 40% or more of the following diseases: hearing impairment, blindness or mental illness. If the disability is severe, the deduction will be Rs1 lakh.