Tax Saving Option Under other Sections in Chapter VI-A Besides 80C
Section 80C, one of the most popular sections providing tax-saving options, offers investment options like EPF, LIC premium, PPF, ELSS and NSC to individuals who want to lower their tax liability.
However, taxpayers should be aware that, in addition to the deduction under the 80C, there are other ways to save tax in India and lower the taxable income. These tax-saving options allow substantial income tax deductions and ultimately reduce tax liabilities. Some of the income tax saving options available are 80D (medical insurance), 80E (interest on education loan), 80EE (interest on home loan), 80G (donations), and 80TTA (interest on savings account).
Before we discuss the tax saving options available under other Sections in 80 series other than Section 80C, let’s understand what tax savings is all about.
What is Tax Savings?
Tax savings can be obtained for certain investment options and expenses. Regardless of tax liability, anyone with income over the statutory basic exemption amount must file an income tax return for the financial year. However, there are several income tax saving options to lower the tax liability. One must be aware of their tax liability and make a plan to reduce the tax liability by taking advantage of tax deductions allowed by the applicable provisions of the Income Tax Act.
What are Income Tax Deductions?
Income tax deductions help taxpayers reduce their tax liability in a financial year. In other words, IT deductions are specific expenditures and investments made throughout a financial year that can be deducted from gross taxable income when filing your ITR. Tax deductions are made available to encourage people to save money and help them create a secure financial future.
Section 80 Deductions
Section 80 of the Income Tax Act, 1961, enables taxpayers to claim tax deductions and reduce their tax liability.
Section 80C is one of the most well-known sections among taxpayers because it enables them to lower their taxable income through tax-saving investments or qualifying expenses. It permits a maximum annual deduction of Rs. 1.5 lakh from the taxpayer’s gross income. only individuals and HUFs are eligible to take advantage of this deduction.
Several investments and payments are eligible for deductions under section 80C. Some of them are investments in PPF, LIC premium, EPF, Equity Linked Saving Scheme (ELSS), Sukanya Smriddhi Yojana (SSY), Senior Citizen Savings Scheme (SCSS), National Savings Certificate (NSC), tax saving FD and ULIP.
There are other income tax saving options that are allowed as deductions under Section 80 other than covered under Section 80C. They are as follows –
Tax Saving Options Under Section 80D
To encourage individuals and HUF for health planning, Section 80D was introduced. Section 80D allows for the deduction for –
- The premium paid for medical insurance for self, spouse, children, or dependent parents.
- Contribution to a registered scheme or the Central Government Health Scheme (CGHS)
- Preventative healthcare examinations
- Spending on the medical care of senior citizens who do not have any active health insurance plan
The amount deducted is determined by the type of expense, the mode of payment, and the age and relationship of the individual for whom the expense was made.
To claim a deduction under Section 80D, the expenditure must be made in any mode other than cash. However cash payments for preventive health checkups are allowed.
The table below will explain how Section 80D allows for a deduction in tax liability under various situations for an individual:
|Medical Particulars||Case I:|
Self: Below 60 years
Parents: Below 60 years
Self: Below 60 years
Parents: Above 60 years
Self: Above 60 years
Parents: Above 60 years
|Medical insurance premium for self, spouse and dependent (inclusive of preventive health check-up limit)||Rs. 25,000||Rs. 25000||Rs. 50,000|
|Medical insurance premium for parents (inclusive of preventive health check-up limit)||Rs. 25,000||Rs. 50,000||Rs. 50,000|
|Maximum deduction limit||Rs. 50,000||Rs.75,000||Rs. 1,00,000|
The above table shows the deductions available to individuals. HUFs can also claim deductions under Section 80D.
Tax Saving Options under Section 80E
Section 80E allows a deduction on the interest component of the payments made for higher education loans.
The interest paid on student loans for higher education taken out for yourself, your spouse, or your children (including those over whom you have legal custody) can be deducted from your taxable income. It should be noted that this tax deduction is applicable only to the interest paid on the loan amount, and not on the principal amount.
Section 80E does not specify a maximum or minimum deduction amount. The interest rate levied by the financial institution, the loan amount, or any other factor has no bearing on the amount of the interest payment deduction. The actual interest paid during the financial year may be deducted under this section. In order to avail of the deduction, the taxpayer will have to get a certificate from the loan issuing authority that shows the principal amount and the interest amount paid out by them separately.
Furthermore, in order to avail of the deduction, a student loan must be taken from an approved financial institution or a charitable organisation.
- Financial institution – A financial institution is any bank operating in accordance with the rules outlined in the Banking Regulation Act of 1949. To be noted that the interest on education loans taken from NBFCs will not qualify for the deduction under this section except from HDFC Credilla. The assessee has to be aware the NBFC from which the loan has been taken has been notified by CBDT or not.
- Charity institution: A charitable institution is an organisation that has the authority referred to in clause 23C of Section 10.
Also, this deduction under Section 80E is available for 8 years or until the full interest amount is paid, whichever is earlier starting from the year when the loan repayment is initiated.
Tax Saving Options under Section 80EE
Under Section 80EE, first-time homebuyers are eligible for an income tax benefit on mortgage interest in the following circumstances:
- This deduction will only be allowed if the property was purchased for less than Rs. 50 lakh and the loan amount is up to Rs. 35 lakh.
- The benefit of this deduction would be available as long as the loan is still being paid.
- The taxpayer should not own any residential property at the time of loan sanctioning.
- Only the interest portion of a home loan is eligible for a deduction under Section 80EE.
- A housing finance organisation or a financial institution must sanction the loan.
- The loan on commercial property for commercial firms is not eligible for the tax benefit.
- A loan must have been sanctioned between 01.04.16 and 31.03.17 to qualify for a deduction under this section.
There are certain points that you should be aware of regarding the deduction available under Section 80EE, which are discussed below:
- If joint filing is made, it must be ensured that both parties are jointly making loan payments. There is no tax benefit available to the Hindu Undivided Family (HUF), companies, trusts, etc.
- A tax benefit is available on a per-person basis and not on a per-property basis.
- A maximum deduction of Rs. 50,000 is allowed per financial year.
- Both resident and non-resident Indians can avail this deduction.
- There is no rigid condition that one has to live in the house for which the loan is taken. Thus, people living in rented accommodations and taking loans for residential property can avail this deduction.
- This tax deduction is over and above the exemption limit of Rs. 2 lakh as per Section 24.
Section 24 allows you to claim tax deduction on the interest amount of your home loan. This is also referred to as “Deductions from Income from House Property”. The maximum income tax deduction cap under Section 24 is Rs. 2 lakh.
It is important to note here that an individual will first have to exhaust the exemption limit of Rs. 2 lakhs under Section 24 to avail the benefits of Section 80EE.
Tax Saving Options under Section 80G
Donations made to designated trusts, charitable organisations, certain funds, etc. are eligible for tax deductions under Section 80G. Even non-residents (NRIs) can claim a deduction under this section. The taxpayer will have to check if the concerned organisation, where the donation is made is eligible for a deduction.
It does not matter whether the assessee is an individual, HUF or a company. The only requirement is that the donation must be made to the designated funds and institutions. Also, the donation has to be made through a cheque, draft, or cash. Contributions made in terms of food, material, clothes, medicines, etc., do not qualify for deduction under this section.
For cash donations, contributions of only up to Rs. 2000 are allowed for tax deductions. If one seeks to make a donation of more than Rs. 2000 and wants to claim deduction on the same, it has to be made through any mode other than cash. The donations listed under Section 80G qualify for a deduction of 100% or 50% subject to some restrictions.
Not all donations qualify for a straightaway 100% or 50% deduction. The donation amount allowed for tax deduction is called the qualifying amount. Based on the qualifying limit, there are four categories of donations under Section 80G. They are –
- Donations with 100% deduction with no qualifying limit
- Donations with 50% deduction with no qualifying limit
- Donations with 100% deduction, restricted to 10% of adjusted gross total income
- Donations with 50% deduction, restricted to 10% of adjusted gross total income
Tax Saving Options under Section 80TTA
The interest received on savings account with a bank, cooperative society, or post office is deductible up to Rs. 10,000 under Section 80TTA. However, there is no deduction for FD interest, RD interest, and any other time deposits. This deduction is allowed to all individuals including NRIs and HUFs other than senior citizens (aged 60 or more as senior citizens can get the exemption upto Rs. 50,000 on the interest income earned in the saving deposit or fixed deposit under section 80 TTB).
Further, it is important to note that if a person has multiple savings accounts with various banks, the maximum deduction for all savings accounts combined will still be Rs. 10,000.
Taxpayers should be aware of the sections which can help them reduce their income tax liability. Under Section 80C, you may claim deductions based on certain tax-saving investments and expenditures.
In addition to Section 80C, there are other ways to save tax in India, such as deductions under Section 80D for medical insurance premiums for oneself, one’s spouse, and dependent parents; Section 80EE for interest payments on home loans; Section 80E for interest payments on the educational loans; Section 80G for donations to charitable organisations; and Section 80TTA for deductions of interest earned on savings accounts.
What types of income are exempt from Section 80G deduction?
From the financial year 2017–18 onward, any cash donations above Rs 2,000 would not be permitted as a deduction. In-kind contributions like food, materials, clothing, medications, etc., do not qualify for a deduction under Section 80G.
Is Section 80EE of the Income Tax Act applicable to the construction of a house?
According to section 80EE of the Income Tax Act, only home loans obtained from any financial institution to purchase a residential property are eligible for deduction of interest. Therefore, section 80EE does not apply to the construction of a house.
What happens to the Section 80TTA deduction if the RBI changes the interest rate?
The interest rate and Section 80TTA have no connection, and the deduction is on the interest amount earned in your savings account irrespective of the prevailing interest rates.
Can a loan for higher education at a foreign university qualify for the deduction under Section 80E?
Yes, the deduction is available for foreign universities. The loan must have been obtained from a financial institution or charitable organisation in India, and the assessee must be a citizen of India. But the institution or university may be from outside India.
Is term insurance exempted under section 80C or section 80D?
No. term insurance premiums are allowed for deduction in both the sections. This, however, depends on the plan. For instance, one can take advantage of tax savings under Section 80D if their term insurance plan has an integrated or add-on cover in the form of a Critical Illness Rider, Hospital Care Rider, Surgical Care Rider, etc. And to avail benefits under section 80C, the yearly premiums paid should not exceed 10% of the sum assured. If the premiums do exceed 10%, deductions will be applied proportionately.