It is that time of the year again, it is the season of filing Income Tax Returns (ITR). As the deadline approaches and the number of reminders from the taxmen increases, taxpayers scramble to finish the tedious, cumbersome, and, more often than not, laborious process – one that involves identifying all income sources accurately, reporting them in the right place, and under the right provision. And since all citizens with an income over the exempted limit have to file ITR, this exercise is something that most of us, if not all, go through.
While the taxpayers (filing returns under the old tax regime) are well aware of the popular and oft-spoken deductions under various sections of Income Tax Act 1961 such as home loan interest, Public Provident Fund (PPF), Employee Provident Fund (EPF), LIC premium, Equity Linked Saving Scheme (ELSS), health and medical insurance, and other tax-saving investments, there are also deductions that are little-known under other not-so-popular sections and sub-sections of the Act.
It may seem last minute to understand the voluminous Act, but don’t worry we’ve got you covered. Here are some lesser-known provisions of the Income Tax Act 1961 which could help you minimize your tax liability and maximize your savings.
Interest accrued on savings account: There is no exaggeration in saying that most people (other than those who run businesses) have at least one savings bank account that they use for all their personal/salary-related transactions. And savings accounts offer interest on the funds saved/deposited which is taxable. We all are aware of this. But did you also know that you can claim a deduction on the interest accrued on the funds in your savings account? Section 80TTA of the IT Act provides taxpayers the opportunity to claim a tax deduction of up to ₹10,000 on the interest accrued on their savings accounts in a particular financial year.
The provision is valid for funds maintained at cooperative banks, and post offices savings schemes as well. One thing that taxpayers have to be mindful of is that this deduction can’t be claimed under the new tax regime.
House improvement loan: Have you gotten your house renovated by borrowing money from the bank? If yes, we have news for you. A house improvement loan fetches you an income tax benefit of up to ₹30,000 on the interest component paid on such borrowing under section 24 of the IT Act. But remember that this tax-deductible is within the overall cap of ₹2 lakh available on home loan interest. In other words, interest payments on a home purchase loan and a home improvement loan together have a tax deduction of up to ₹2 lakh. Also, in case you wondered: interest repayments for a home purchase loan taken from relatives, friends, or any other legitimate lender could also be claimed as a deduction under section 24 as long as there are loan agreements and other particulars. So, if you got some renovation/improvement done at home, this provision would help you reduce your tax expenses.
Preventive health checkups: If the last two years have proven anything then it is that there are no truer adages than ‘Health is wealth’ and ‘Prevention is better than cure’. While we take necessary precautions, life is unpredictable. What could help is regular health checkups that could help prevent serious ailments. That is why section 80D of the IT Act provides taxpayers an opportunity to enjoy a benefit of ₹5,000 for self, spouse, children and parents for expenses towards preventive health check-ups. So, if you have gotten any health checkups, you can use the invoices from doctor's consultation, X-Ray, blood tests and other diagnostic tests to claim the benefit. There is no mandate to submit the proofs while claiming the tax benefit. However, it is always prudent to have a clear and authentic record of your health and medical files.
It is also important to note that the preventive health checkup tax deductible is within the overall limit of ₹25,000/ ₹50,000 (based on the age) of medical insurance deductibles.
Tax break on interest paid on e-vehicle loans: In the last two years, we have seen an increased rate of adoption of electric vehicles (both two-wheeler and four-wheelers) for personal use. According to reports from the automobile sector, e-vehicle sales in India shot up threefold to a total of 4.3 lakh units in FY22 as compared to 1.3 lakh units from the previous year. So, if you were one of the e-vehicle enthusiasts who purchased a bike or a car last year on a loan, you could be eligible for a total tax exemption of up to ₹1.5 lakh under section 80EEB of the IT Act (actual interest on the loan or ₹1.5 lakh, whichever is lower). The payoffs of any e-vehicle loans accepted between April 1, 2019, and March 31, 2023, are eligible for this tax break for individual taxpayers only.
Pre-school/nursery fee exemption: Did you know that the IT Department introduced several tax benefits for your child's education that allow you to minimize your tax burden in order to promote education and literacy? While it is known that parents could claim tax benefit on the amount paid as tuition fees to a university, college, school or any educational institution under 80C of the IT Act, it is important to know that the said provision is also applicable to pre-school/nursery/play school/creche fee as well. However, the taxpayer could avail up to ₹1.5 lakh in total under 80C (i.e. including the deductions pertaining to insurance, provident fund, pension, etc.) in a financial year. Besides this, one could also avail of exemptions of ₹100 per month per child as children’s education allowance and ₹300 per month per child as hostel expenditure allowance.
The deduction is available to a maximum of two children for each individual. The law also has a provision for the claim to be made by single/unmarried and divorced parents.
Also, parents who adopted children could also file claims under this provision.
COVID-19 treatment: The Government of India has provided an income tax relief to the amount received by a taxpayer for medical treatment from an employer or from any person for the treatment of COVID-19 during the financial year 2019-20 and subsequent years. This could be availed by the taxpayer or their family members. The same benefit is also extended to those who have received ex-gratia from employers or wellwishers of families that lost a member to the pandemic. Please note that the benefit had come into retrospective effect from FY19.
Offsetting capital gains and capital loss: If a taxpayer experiences a capital loss at the time of selling any asset, then that loss may be offset. The law does not permit offsetting loss under the head capital gains against any income from other heads. therefore, a long-term capital loss can be set off only against long-term capital gains.
Short-term capital losses, however, are allowed to be set off against both long-term gains and short-term gains.
In case the loss is not offset in the current year, both long-term and short-term losses can be carried forward to the next year or for eight assessment years immediately following the assessment year in which the loss was borne. What is important here is capital losses for a year can't be carried forward unless ITR for the said year has been filed before the due date. To have the option of carrying forward, the subsequent ITRs also have to be filed before the due date. This holds good even if there is no income in any of the years.
The deadline for filing your ITR is just around the corner. An extension (which has been sought) or no extension (which is likely), it is always a good practice to file ITR before the due date. And while doing so, it is beneficial to have a detailed look at the little-known provisions that would enable taxpayers to maximize their savings and investments. Do consult your accountant or auditor to know and understand more about such provisions before filing your IT returns, besides your own due diligence. Happy tax filing!
Lizzie Chapman, CEO and Co-Founder, ZestMoney