India Gate in Delhi and the Gateway of India in Mumbai get visited by almost every tourist in the city. But, they miss out on great sights and good food when they concentrate only on the popular spot.
Similarly, when it comes to tax strategies and tax savings instruments for most of us are centred on the popular Sec 80C of the Income Tax Act. While this provision offers a tax saving up to Rs. 1.5 lakhs in a year, and can be quite substantial, there are other lesser known tax strategies which can help you reduce your tax outflow.
Here are such top 9 little known tax strategies:
- Sec 80CCC: When an amount is deposited by the individual to keep in force a contract for an annuity plan of LIC, or any other insurer, for receiving pension from the fund, this provision can be used. The whole amount paid is allowed as a deduction subject to a maximum limit of Rs. 1 lakh (this has been increased to Rs. 1.5 lakhs from Assessment Year 2016-17 onwards).
- Sec 80CCD: This allows a deduction of up to 10% of an employee’s salary if the amount is deposited in a pension scheme. According to Budget 2015, any amount contributed towards the National Pension System will be eligible for an additional deduction of Rs. 50000 during the year of contribution.
- Sec 80D: The premium paid by an individual towards health insurance will be eligible for deduction from total income. An individual can claim up to Rs. 15,000 a year for self and family. An additional amount of Rs. 15,000 is available if the insurance premium is for a health insurance taken for parents of the assessee. In case the assessee is a senior citizen, a total of Rs. 20,000 is available as deduction for self and family. Further, if the insurance premium is for parents who are senior citizens, then an additional deduction of Rs. 20,000 is available.
- Sec 80E: This provision is towards the interest paid on education loans for higher studies taken by self or spouse or children of the assessee. The loan must be taken for pursuing studies at a recognized school, board or university and should be taken from a recognized financial institution or approved charitable institution. This deduction is available for a period of 8 years.
- Sec 80G: Any donation given to approved charitable institutions or certified funds, are allowed as a deduction under this section. The deduction is available for up to 50% or 100% of the donation amount. The section gives a detailed account of the eligible donations which can be claimed as a deduction and the extent of deduction available.
- Sec 24b: The interest paid on home loan borrowed for the purpose of purchase of a house is allowed as a deduction under Sec 24b of the Income Tax Act. A maximum deduction of Rs. 2 lakhs is available from the Assessment Year 2015-16 (this was Rs. 1.5 lakhs up to the Assessment Year 2014-15).
- Structure your salary smartly: In addition to claiming a deduction in income under the various sections, you can also reduce your tax outflow by smartly structuring your salary package. Opting for food coupons is one way, wherein the total amount will be deducted from the taxable income. Opting for medical allowance (up to Rs. 15000 a year) and telephone reimbursements is also a way to minimize tax liability. You will need to submit the necessary proof to your employer.
LTA allows you to claim tax exemption on the amount spent on travel twice in a block of four calendar years. HRA opted for when you are staying in a rented house can reduce tax liability. The amount exempt is lower of the actual HRA received, or 50% of your basic salary if you live in the metros (40% when living elsewhere) or rent paid in excess of 10% of basic salary.
- Set up a HUF Trust: A Hindu Undivided Family trust is a separate entity for tax purposes and can be formed by an individual with his spouse, children, their wives and their children. Only the income directly attributable to the HUF will be considered as HUF income. This is a legitimate tax saving vehicle, where the tax slabs and exemptions applicable to an individual are also applicable to a HUF trust.
- Owning house in a different city: When you stay in a rented house in your city of work, you can claim HRA from your employer. However, if you also own a house in another city and have taken a home loan for the same, you can get home loan benefits as well in the form of principal and interest deduction. This strategy can make sense if you cannot afford to buy a property in your city of work and would like to invest in a property which is more affordable in another fast growing city.
Saving tax is not as difficult as it seems, and you can adopt the above innovative strategies and visit the Parsi Café and the Sarojini Market of tax strategies.
YOU MAY ALSO WANT TO: Find out if your home loan EMI is eating into your travel budget. Home Loan EMI Calculator