If you have already exhausted the deduction limit of Rs 1.5 lakh under Section 80C, there are also some opportunities/options available to you apart from 80C investments.
As the financial year 2020-21 is about to end today, it’s time to analyze the tax-saving investments one can avail to save taxes in the current tax year till 31st March 2021. The government has introduced the new tax regime w.e.f. 1st April 2020 and taxpayers who meet certain conditions were given the option to select a simplified tax regime that offers lower tax rates.
“The old/regular tax regime might be beneficial for some taxpayers, while it may not for others. This will depend on the level of income of the individual. One can choose the new regime where the rates are lower. However, certain exemptions and deductions are not available which would continue with the regular old regime. In case an individual has opted for the old tax regime, one can claim deductions of up to Rs 1.5 lakh under Section 80C under tax provisions,” says Sudhakar Sethuraman, Partner, Deloitte India.
However, if you have already exhausted the deduction limit of Rs 1.5 lakh under Section 80C, there are also some opportunities/options available to you apart from 80C investments.
“With several investment products, small saving instruments, insurance policies, pension schemes, home loan repayments, EPF contribution, etc. crowding Section 80C, taxpayers often tend to exhaust the deduction limit of Rs 1.5 lakh under this Section quite easily. Such taxpayers should consider tax deductions and exemptions available under the Income Tax Act to reduce their tax liability,” says Sahil Arora, Director, Paisabazaar.com.
Let us take a look at some of such tax-saving options you may consider other than those available under Section 80C:
1. Section 80CCD (1B): Additional deduction for NPS investments
Section 80CCD (1B) allows an additional tax deduction of up to Rs 50,000 on contribution in NPS Tier I Account. This deduction is over and above the deduction available on contribution of up to Rs 1.5 lakh in the NPS Tier I account under Section 80C.
2. Section 80D: Health insurance premium
Section 80D allows tax deduction of up to Rs 25,000 on health insurance premiums paid for self, spouse and dependent children. You can avail an additional deduction of up to Rs 25,000 on health insurance premiums paid for your parents below 60 years of age. A higher tax deduction of up to Rs 50,000 can be claimed for paying health insurance premium for parents above 60 years.
3. Section 10(13A): HRA exemption by paying rent to parents
Section 10(13A) allows tax deduction on the HRA component of salary to those living in rented accommodations. Taxpayers living with their parents in the accommodation owned by their parent(s) can also claim this deduction if they pay rent to their parents.
“Note that you should pay rent to the parent owning the property. Parent receiving the rent amount should disclose the rental income while filing his or her IT returns. Ensure to maintain proper record and documentation of paying rent to your parent in the form of rent receipts, rent agreement and paying the rent through bank transfers. Doing so will keep you prepared for scrutiny, if any, by the tax officials,” says Arora.
4. Section 80GG: Deduction on rent for those not receiving HRA
Section 80GG allows self-employed and salaried individuals not receiving HRA as part of their salary to avail tax deduction on the rent paid for their accommodation. However, the deduction available under this Section has been capped at Rs 5,000 per month or 25% of one’s total income for a year or actual rent paid in excess of 10% of one’s total income, whichever is lower.
5. Section 80DDB: Deduction for medical treatment of specific diseases
Section 80DDB allows taxpayers to claim deduction on the amount spent on treating specific ailments for self or dependent family member. These ailments are mentioned in Rule 11DD of IT Act and include diseases like AIDs, chronic renal failure, haemophilia, malignant cancer, thalassaemia and other neurological ailments. The deductions can be claimed only on the submission of relevant prescriptions from the list of specialists mentioned in Section 80DDB.
“While the deduction allowed on the amount spent on treating those below 60 years of age has been capped at Rs 40,000, the deduction allowed on the amount spent on treating senior citizens can go up to Rs 1 lakh,” says Arora.
Opportunities/options available to individuals apart from 80C investments:
(Table by Deloitte India)