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How to save tax without fresh investments? Research Team | Posted On Tuesday, March 17,2020, 05:29 PM

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How to save tax without fresh investments?



How to save tax without fresh investments?

Its tax season and a critical time to make tax saving investments. You have to invest in all eligible tax saving investments before March 31st 2020. There are a number of investments like SCSS, PPF, ELSS, 5 year tax saving FD, POTD, your contribution to EPF, NSC among others which enjoy tax deduction under Section 80C up to Rs 1.5 Lakhs a year. This is a collective deduction up to the specified limit.

You also have Section 80D where the health insurance premium paid for self + spouse + children up to Rs 25,000 a year is tax deductible. It’s Rs 50,000 a year for senior citizens. Now, if you don’t have the money to invest in eligible tax saving investments under Section 80C or avail Section 80D benefits you can still save tax. Let’s understand how to save tax without fresh investments in FY 2019-20.

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See Also: Last Minute Tips to Save Tax

How to save tax without fresh investments?

1. Children’s education and tuition fees

Children’s education, tuition fees and hostel expenditure are common expenses. You also have children’s education allowance and hostel expenditure allowance which is restricted to Rs 100 and Rs 300 a month. This is up to a maximum of 2 children.

The tuition fees which are paid to a college, university or school for full-time education up to 2 children enjoys Section 80C tax benefit. You don’t get this benefit for a foreign educational institution.

You get children education allowance only if it’s part of your salary. You would have to actually incur expenses on children’s education. The children education allowance is Rs 100 per child per month up to two children. For children’s tuition fees it is the actual expenses incurred on child’s education up to Rs 1.5 Lakhs a year. You get this even if tuition fees are not part of salary component.

2. Deduction on home loan

Real Estate prices are rising in India. Many youth buy a house early in their career and don’t have the needed amounts. They avail a home loan and consequently enjoy home loan tax benefits.

You get tax deduction on home loan principal up to Rs 1.5 Lakhs a year. It’s a tax deduction of Rs 2 Lakhs a year under Section 24(b) on home loan interest. You also have Section 80EEA where you get tax deduction on home loan interest up to Rs 1.5 Lakhs a year. The home loan must be sanctioned between 1st April 2019 and 31st March 2020.

This is an additional tax deduction over and above the Rs 2 Lakh deduction on home loan interest. The Section 80EEA tax benefit is only for first-time home buyers and the stamp duty value of the house/property must not exceed Rs 45 Lakhs. Take joint home loan with spouse where each member enjoys tax benefits under Section 80C, Section 24(b) and Section EEA separately.

3. House Rent Allowance

You get HRA as part of the salary. If you don’t have a residential house or stay far away from own house/property, you get HRA benefit under Section 10(13A) based on the actual rent you pay.

Under Section 10(13A) you get an exemption on the least of the following:

  • The actual HRA you receive
  • 50% of (basic salary + DA) if you reside in a metro city. Its 40% on residing in the non-metros.
  • The actual rent paid – 10% of basic salary + DA.

4.The standard deduction on your salary

All salaried employees get standard deduction up to Rs 50,000 a year. You get this deduction when filing Income Tax Returns. Consider the standard deduction when computing tax liability.

See Also: ELSS: Smart Way to Save Tax

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