scorecardresearchIncome tax: 10 deductions that can be availed without making an investment

Income tax: 10 deductions that can be availed without making an investment

Updated: 20 Feb 2023, 09:01 AM IST
TL;DR.
We will discuss how you can get tax benefits on ten such investments/payments that you may anyways be making.
Income tax refund is generally credited to the bank account within three weeks of filing of income tax.

Income tax refund is generally credited to the bank account within three weeks of filing of income tax.

Some financial products that offer tax benefits under Section 80C of the Income Tax Act require individuals to invest money in them. However, individuals living from paycheck to paycheck may or may not have the required money to invest. Hence, they may not be able to avail of the tax benefits on these financial products.

However, there must be certain investments/payments that many individuals may be making irrespective of whether they offer tax benefits or not. In this article, we will discuss how you can get tax benefits on 10 such investments/payments that you may anyways be making.

EPF contribution

In the case of most salaried individuals, a certain percentage of their salary goes towards Employee Provident Fund (EPF) contribution. It provides you with the twin benefits of building a retirement fund and tax benefits. The amount contributed towards EPF is eligible for deduction from taxable income under Section 80C of the Income Tax Act. The maximum deduction allowed in a financial year is the amount contributed or Rs. 1,50,000, whichever is lower.

Tuition fee paid for children

The tuition fee that you are paying for your child qualifies for a deduction from taxable income under Section 80C of the Income Tax Act. The tuition fee paid to any school, college, university or other educational institution situated in India for full-time education qualifies for the deduction. The deduction can be availed for the tuition fee paid for any two children.

The maximum deduction allowed in a financial year is the tuition fee paid or Rs. 1,50,000, whichever is lower. Please note that you cannot claim a deduction for any amount paid towards development fees, donations, or payments of similar nature.

Home loan principal repayment

If you have bought/constructed a residential property by taking a home loan, you will anyways be paying the home loan EMI. You can avail of a deduction from taxable income for the principal as well as the interest portion of the EMI.

The repayment of the principal portion of the home loan EMI qualifies for deduction from taxable income under Section 80C of the Income Tax Act. The maximum deduction allowed in a financial year is the principal amount paid or Rs. 1,50,000, whichever is lower.

Stamp duty and registration fee for purchase of residential property

The amount paid towards stamp duty and registration fee for the purchase of a residential property qualifies for deduction from taxable income. The deduction is allowed under Section 80C of the Income Tax Act. The maximum deduction allowed in a financial year is the amount paid or Rs. 1,50,000, whichever is lower.

Home loan interest payment

The interest paid on a home loan qualifies for deduction from taxable income under Section 24 of the Income Tax Act. The maximum deduction allowed in a financial year is the amount paid or Rs. 2 lakhs, whichever is lower.

Interest paid on a higher education loan

Many individuals take an education loan for higher studies. The interest paid on an education loan qualifies for deduction from taxable income under Section 80E. The loan should have been taken from any financial institution or approved charitable institution for higher education. An individual can take the loan either for themself or a relative. A relative can include the individual’s spouse, children, or the student for whom the individual is the legal guardian.

The entire interest amount paid in a financial year qualifies for deduction without any capping. The deduction can be availed till the loan tenure gets over, or 8 years, whichever is earlier. Under Section 80E, higher education means any course pursued after Senior Secondary Examination (SSE) or its equivalent from any Government recognised school, board, or university.

Interest paid on electric vehicle loan

In the last couple of years, the adoption of electric vehicles (EVs) is increasing at a rapid pace as they are environment-friendly and fuel efficient. However, as the initial cost of purchasing an EV is higher than an ICE-engine vehicle, many people take a loan to purchase it. The interest paid on a loan taken for purchasing an electric vehicle qualifies for deduction from taxable income under Section 80 EEB.

The maximum deduction allowed in a financial year is the amount paid as interest or Rs. 1,50,000, whichever is lower. The loan should have been sanctioned between 1st April 2019 and 31st March 2023.

Amount paid for a preventive health check-up

These days many people go for preventive health check-ups either half-yearly or annually for themselves and their family members. The amount paid for a preventive health check-up qualifies for deduction from taxable income under Section 80D.

The maximum deduction allowed in a financial year for a preventive health check-up is the amount paid or Rs. 5,000, whichever is lower. The deduction is a part of the overall deduction of Rs. 25,000 (Rs. 50,000 for senior citizens) allowed under Section 80D. The amount can be paid for a preventive health check-up for self and family. Family includes spouses and dependent children.

NPS contribution made by your employer

You can avail of a deduction from your taxable income on the amount contributed by your employer to your NPS account under Section 80CCD(2). The maximum amount that can be availed of as deduction is:

  • Up to 14% of salary contributed to a Government (Central or State) employee’s NPS account
  • Up to 10% of salary contributed to any other employee’s NPS account

Interest earned on a savings account

You must be maintaining a savings account for various purposes, such as receiving a salary, business income, any other income (dividend, rent, etc.), building and maintaining an emergency fund, etc. The interest earned on a savings account qualifies for deduction from taxable income under Section 80TTA. The maximum deduction allowed in a financial year is the interest earned or Rs. 10,000, whichever is lower.

Note: The aggregate deduction that can be availed of for all products covered under Section 80C is Rs. 1,50,000 in a financial year. In this article, we have covered Section 80C products such as EPF, tuition fee paid for children, home loan principal repayment, stamp duty and registration fee for purchase of residential property, etc. The other well-known products covered under Section 80C include PPF, ELSS, NSC, life insurance, SCSS, 5-year tax-saving fixed deposit, etc. So, the maximum deduction that can be availed of in a financial year for all Section 80C products is Rs. 1,50,000.

Tax deductions on specified investments/payments

In this article, we have discussed 10 investments/payments that you will anyways make. However, you can avail of deductions from your taxable income for these. Let us summarise them:

 

ProductSection of Income Tax ActMaximum deduction allowed in a financial year
EPF contributionSection 80CRs. 1,50,000
Tuition fee paid for childrenSection 80CRs. 1,50,000
Home loan principal repaymentSection 80CRs. 1,50,000
Stamp duty and registration fee for purchase of residential propertySection 80CRs. 1,50,000
Home loan interest paymentSection 24Rs. 2,00,000
Interest paid on a higher education loanSection 80EEntire interest paid in a financial year
Interest paid on electric vehicle loanSection 80 EEBRs. 1,50,000
Amount paid for a preventive health check-upSection 80DRs. 5,000
NPS contribution made by employerSection 80CCD(2)14% of salary for a Government employee, and 10% for any other employee
Interest earned on a savings accountSection 80TTARs. 10,000

With these investments/payments, you can avail of deduction from your taxable income under various sections of the Income Tax Act. Thus, you can still avail of tax benefits even if you are constrained for making new investments under Section 80C.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn

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First Published: 20 Feb 2023, 09:01 AM IST