7 Crucial Expenses To Know Before Tax Planning For FY 18-19

By Shrutika Vaishnavi | May 30, 2018

Tax-planning on your mind? Know all about these crucial expenses first.

Tax planning is the most crucial part of your financial plan for the year. If you feel too lazy to look for some good tax-saving options, it’s going to hurt your pocket in the end. Tax planning is not as difficult as it sounds. All you need to do is look for the right places to invest so that you can save better. Unless you have a lot of money that you are willing to throw away as tax, you need to spend some time looking for the right investment schemes.

Psst… did you know that ELSS Mutual Funds are a good tax-saving option? Click here for more information.

Additional Reading: Form 16 Demystified

The government, in this case, is on your side. To lessen your tax burden, they have introduced some legitimate ways to save on tax. There are several exemptions, deductions and rebates provided under the Income Tax Act. Knowing these directions in advance may help you with efficient tax planning and reducing your tax load. It is important to realise that tax planning is a year-round activity. Additionally, there are two different ways to save tax—one, through investment and the second, by disclosing your expenses.

Before planning your taxes, you must know that there are some expenses that are tax exempt. It is important to check these expenses before you invest to save tax. Identifying your tax-saver expenses helps you assess how much you need to invest for maximum tax savings. To help you identify these crucial expenses that can help you plan your taxes better, we have prepared a list. It is as under:

  1. Children Tuition Fees: Section 80C

If you are paying any tuition fees for your child’s education in any school, university, college or any other educational institution within India, you can get a tax exemption under Section 80C. This can be up to Rs. 1 lakh in a year. The amount of deduction, however, is restricted to two dependent children and should pertain only to actual tuition fees paid. Both husband and wife have a separate limit of two children. So each parent can claim for two children each. The deduction is only available for full-time courses and not for private tuitions or coaching classes. The exemption is Rs. 100 per month per child as education allowance and Rs. 300 per month per child for hostel expenditure expenses.

Additional Reading: 7 New Things The Income Tax Department Wants To Know About You

  1. Housing Loan (Principal and Interest Payment): Section 24, 80C and 80EE

The principal and interest component of your Home Loan EMI are both eligible for a deduction under Section 80C and Section 24 of the Income Tax Act. You can claim a deduction of up to Rs. 1.5 lakhs on principal repayment and up to Rs. 2 lakhs on interest repayment in a year. You just need to keep in mind that the benefit of tax under Section 80C is reversed if the taxpayer sells the house within five years from the purchase of that property.

  1. Medical Insurance: Section 80D

If you are paying a premium for your Health Insurance policy, it is exempted from Income Tax under Section 80D of the Income Tax Act for up to Rs.15,000 for an individual (less than 60 years of age) covering their family and dependent children.

In case the tax-payer also covers his parents under medical insurance, then they are eligible for a deduction of another Rs. 15, 000 under section 80D. If the age of either of parents to be covered is above 65 years, the deduction available is Rs. 20, 000 under section 80D of the Income Tax Act. The deduction can be claimed irrespective of whether parents are dependent or not. A deduction of Rs. 5, 000 can also be claimed for a preventive health check-up for self, spouse, children and parents under the overall limit of Rs. 15, 000 under this section.

Additional Reading: How To Fill New Income Tax Return (ITR) Form – 1

  1. Education Loan: Section 80E

A good-quality education doesn’t come cheap. When you start planning your higher studies, probably the first thing that comes to your mind is ways of managing your expenses to reduce the burden of your Education Loan. Most prestigious colleges are quite expensive and if you don’t plan your finances well, it could affect your future.

Hold on! Every cloud has a silver lining. In this case, it comes in the form of tax exemption. The entire interest portion on an Education Loan is fully tax-exempt under Section 80E of the Income Tax Act. The only thing that you need to keep in mind is that you can get a tax exemption only for full-time educational programmes.

  1. Treatment of Disabilities: Section 80DD and 80DDB

The Income Tax Act gives you an exemption when you spend on medical care expenses that are incurred during the treatment of specific disabilities and illnesses of any of your dependents. There are two sections declaring the same.

According to Section 80DD, expenses incurred during the medical treatment of a dependent suffering from a disability are eligible for deduction. However, Rs. 50,000 is the limit for deduction for a normal disability (impairment of at least 40%) and Rs. 1 lakh for severe disability (impairment of 80% or above). Similarly, according to Section 80DDB, expenses incurred during the treatment of some illnesses for dependents can also be deducted from income. For senior citizens, this deduction amount limit is Rs. 60, 000 and Rs. 40,000 for non-senior citizens.

  1. Donations: Section 80G

Any donations made to certain funds and approved charitable trusts/ institutions/ organisations are eligible for deduction under Section 80G of the Income Tax Act. Some donations are 100%tax-exempt while others are restricted to 50% of the donated amount. Although, the rules are different for various organisations, for most donations, the maximum exemption limit is restricted to 10% of the gross annual income of the taxpayer.

Additional Reading: 5 Wise Steps To Take During The New Financial Year

  1. Life Insurance Premium: Section 80C

Life Insurance is a good option if you want to save tax in addition to taking care of the financial needs of your dependents should you not be around. You can get an exemption of up to Rs. 1,50,000 under Section 80C of the Income Tax Act when you take a Life Insurance policy.

Covered all these crucial expenses? Congratulations, your tax-planning is almost sorted. Sort it out completely by investing in the right places.

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