Under Section 80C, investing in schemes like PPF, ELSS, or insurance can help save tax. But did you know that certain expenditures can help you save tax too? Find out more here.
We’re three months into the New Year, and it’s probably a good idea to start tax planning. This will minimise your tax outgo in the next year. But before you start making hurried investments under Section 80C to claim an exemption, here’s an interesting fact to note. Did you know that certain expenditures under Section 80C of the Income Tax Act, 1961 can help with tax saving too?
If you have incurred any of the below-mentioned expenses in the current financial year i.e. FY2017-18, then you can claim a deduction for it up to a maximum of Rs.1.5 lakhs. If the expenditure incurred amounts to Rs.1.5 lakhs or more, you don’t need to make any investment to utilise the Section 80C tax saving limit.
Tuition fees for children
Payments that you make towards your children’s tuition fees are eligible for a deduction from your gross taxable income. As per the Income Tax Act, any tuition fees paid at the time of admission, or thereafter to any university, college, school is eligible for this deduction.
This, however, doesn’t include fees paid for your or your spouse’s education. Or payment made as development fees or a donation or any payment of a similar nature.
This provision holds true only for fees paid for studies pursued full-time. It also includes fees paid for any play-school activities, pre-nursery and nursery classes.
The institution has to be situated in India but it can be either a government or private one. This benefit is available for only two children per parent i.e. mother or father. Only the parent who has made the payment can avail the tax benefit.
Additional reading: Your Income Tax Exemption Guide For The Financial Year 2018-19
Home Loan Principal Repayment
Section 80C can be a huge breather for individuals who are spending a significant portion of their salaries on hefty equated monthly instalments (EMIs) towards the repayment of their Home Loan. The EMI paid by you has two components: principal and interest. The total amount that you pay in a financial year (1 April to 31 March) can be claimed as a deduction from gross total income under Section 80C before calculating the net taxable income.
Not just individuals but even Hindu Undivided Families (HUFs) can claim this deduction. One can get a loan certificate from the lending bank’s branch or go online. The certificate will show how much of the total EMI payable in a year was towards repayment of the principal amount.
In the initial years of loan repayment, the interest component of the EMIs is much more than the principal component. However, in later years, the principal repayment component of the EMIs becomes much larger. Payment of interest on the loan is also eligible for deduction from gross total income under Section 24 and Section 80EE subject to certain conditions.
An assessee must, however, fulfil certain conditions to claim the deduction. This deduction is available only in case of purchase or construction of the house. Loans taken for home renovation/repairs or addition to the house are not eligible for this deduction if the completion certificate has been issued for the same house or of the house is occupied by the user or let out.
You cannot sell the house property before five years from the end of the financial year in which you gained possession of such property. The deduction that you claimed earlier, otherwise, will be added back to your income in the year of sale.
Additional reading: Start Tax Planning Today
Certain payments for the purchase/construction of residential house property
If you’ve bought a house, then there are certain charges that you will need to pay apart from the cost of the house. As per the Income Tax Act, any stamp duty, registration fee, and other expenses that you incur for the purpose of buying a house is eligible for deduction from gross total income in the financial year in which you incurred these expenses. ‘Other expenses’ include other statutory expenses similar to stamp duty or registration charges (if any applicable on transfer of property).
One must note that it doesn’t matter whether an individual has taken a loan or not to acquire the property.
Payment to development authority, housing board or other authority for the purchase of a house
If you have bought a house under the instalment finance scheme from a development authority such as the Delhi Development Authority (DDA) and are paying the instalment to the DDA, then the amount you’re paying towards principal repayment will also be eligible for deduction under Section 80C.
Looking to save taxes? Check out investments that will help you do just that only on BankBazaar!