Only two things are said to be certain in life – death and taxes. Tax, in fact, is something which almost every individual having income beyond a certain limit has to pay. And we have the common perception that to reduce the tax outgo, we need to invest our money in any of the tax-saving options such as ELSS mutual funds, PPF, tax-saving FD etc. However, many of us are not aware about the various tax provisions that reduce our tax outgo without making any investment. For instance, almost everyone pays the children’s tuition fees to any school, college or educational institute. That is allowed as deduction from your income under Sec 80C.
Let’s discuss some ways to save tax without investing:
1. Children Tuition Fees
Tuition fees paid to any school, college, university or educational institute situated in India for the education of children is allowed as deduction from the income. The maximum limit for deduction is up to Rs 1.5 lakh under Section 80C. The deduction is allowed for maximum up to two children. “The fees, however, should be paid for a full-time course only. Tuition fees paid for private tuition, coaching classes for admission in professional courses are not allowed as these are not paid for full-time course. Also, the tuition fees paid to any educational institute situated outside India are not allowed, but fees paid to any school, college or university situated in India and affiliated to foreign university are allowed,” says Archit Gupta, CEO & Founder, ClearTax.in.
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2. Repayment of Home Loan
If you are paying home loan EMI, it has two components: principal repayment and interest part. The income tax benefit is available for both the principal and interest part. The repayment of the principal of a loan taken to buy or construct a residential property is eligible for tax deduction under Section 80C.The maximum limit for deduction is up to Rs 1.5 lakh u/s 80C.The deduction is also applicable on stamp duty, registration fees and transfer expenses, but within the limit of Rs 1.5 lakh u/s 80C. However, “the property must not be sold in five years from the time you took possession. Doing so will add back the deduction to your income again in the year you sell. The interest paid on home loan is allowed as deduction up to Rs 2 lakh u/s 24. To avail this deduction, purchase or construction of the house must be completed within 5 years from the end of financial year in which the loan was taken, otherwise deduction is limited to Rs 30,000 only.” informs Gupta.
3. LIC Insurance Premium Paid
The annual premium paid for life insurance in the name of the taxpayer or the taxpayer’s wife and children is an eligible tax-saving payment under Section 80C. The maximum limit for deduction is up to Rs 1.5 lakh u/s 80C.The deduction is valid only if the premium is less than 10% of the sum assured. The deduction is allowed for the premium paid during the financial year irrespective of the period for such premium is paid. For instance, if you have paid LIC premium of Rs 25,000 on 20th Feb 2017 for the period of one year up to 19th Feb, 2018, you can claim the whole amount in your return for FY 2016-17 though the period relates to the next financial year.
4. Contribution to Employees Provident Fund
In case of salaried individuals, PF is automatically deducted from the salary. Both the employee and the employer contribute towards it at the rate of 12% of basic salary. The employer’s contribution is exempt from tax and the employee’s contribution is allowed as deduction within the limit of Rs 1.5 lakh u/s 80C. The employee also has the option to contribute additional amount to PF and claim it as deduction u/s 80C, but not exceeding Rs 1.5 lakh.
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5. Interest paid on Education Loan
If you have taken an education loan and are repaying the same, then interest paid on education loan is allowed as a deduction from the total income u/s 80E. However, deduction is provided only for interest part of the EMI paid during the financial year. There is no tax benefit for the principal part of the EMI.
“There is no limit on the maximum amount that is allowed as deduction. The loan should be taken to pursue higher studies. It does not matter whether such education loan is taken for higher studies in India or outside India. Higher studies include all the fields of study pursued after passing the senior secondary examination or its equivalent exam. It includes both the vocational courses as well as the regular courses. However, the benefit of tax deduction is available only for 8 years starting from the year in which you start repaying the loan or until the interest is fully repaid, whichever is earlier,” says Gupta.