Many salaried individuals think that there are very few options for tax planning when they have fixed income as their employer reports the income directly. Many people get stuck on the well-known deductions like Section 80C investments, and maybe even their health insurance premiums, but fail to realise that there are other legitimate deductions that aren’t as widely known. This article examines deductions that many salaried employees don’t think of and why they fail to be remembered.
Beyond the Standard 80C Basket
Investments in Provident Fund, life insurance premiums, Equity Linked Savings Schemes are claimed as a deduction under section 80C and are the most common deductions to be claimed by salaried taxpayers, mainly because the employers often make the contribution automatically on the employee’s behalf. But contribution to the PF is often the maximum limit of one and a half lakh rupees under this section and may not allow for further tax-saving investment under this limit. The problem with applying this “calculation” is that there are several deductions which are not part of 80C ceiling and which provide additional tax-saving opportunities that many salaried individuals may not be aware of as they believe all the deductions are under the same ceiling.
Section 80D: Health Insurance Beyond the Obvious
Most of the salaried individuals avail the deduction on their medical insurance premiums and premiums paid for their family but fewer avail the additional deduction available for premiums paid for the medical insurance of their parents, which is available as an additional deduction and is further enhanced for senior citizens. This is a deduction that a lot of people miss out on, especially professionals who purchase parental health cover, but believe it is part of the family limit.
The other commonly missed category is preventive health check-up costs again under the same limit, but in a smaller amount, and much less noticeable than the insurance premiums in which it would otherwise be included and taxpayers simply don’t realize that these costs can be claimed separately from their insurance premiums.
Section 80TTA and 80TTB: Interest Income Deductions
However, many salaried taxpayers don’t consider deduction for interests received on their savings bank accounts, on which interest income is taxable, under section 80TTA of the IT Act, 1961, even though it is available, due to lack of awareness or just the small amounts of interest received. The deduction under Section 80TTB is more liberal for interest income earned from fixed deposits and other interest income, which is relevant when senior citizens file returns on behalf of retired parents.
House Rent Allowance Complications
HRA exemption is a term that is widely known but is calculated incorrectly and often not even mentioned in Form 16, especially in cases where the professionals fail to provide HRA exemption details in the following form to their employer in time:The exemption for HRA is known but the calculation is incorrect and often the exemption is not even mentioned in Form 16, in particular in the cases where the professionals provide their employer with the details of the HRA exemption not in time in the following form: If this is the case, the exemption can be claimed even when filing the return directly but many salaried persons wrongly believe that if the exemption has not been claimed in Form 16, it will not be available when filing the return later. This results in a complete avoidable overpayment of taxes.
Remember, HRA exemption and interest deduction on a home loan are two different provisions and can be claimed simultaneously, but many professionals living in a different city than where they own a house often don’t realize that they may still be eligible to both claim HRA exemption and interest deduction on a home loan to which they apply for, for their home in their own city.
Deduction on Education Loan Interest
Interest paid on loans to be used for further education (for the taxpayer, a spouse or a child) may be deducted under section 80E, and there is no limit on the amount, though it is limited to interest and only for a certain number of years after the loan is taken out. A common example of this deduction that is often overlooked is when investors are paying back an education loan that they borrowed years ago, and they have not been thinking about it since that loan was repaid in a regular repayment period.
National Pension System Contributions
In addition to the 80C limit, contributions made to the National Pension System (NPS) up to a specified amount are allowed to be made beyond the 80C limit under Section 80CCD(1B) of the Income Tax Act, 1961. This is one of the less utilized deductions for salaried individuals as it is also viewed as a retirement product and not a tax planning product, leading to many individuals neglecting the substantial extra deduction apart from the one that comes from 80C investments.
Deduction for Disability and Specified Medical Treatment
Section 80U and 80DD give deduction for taxpayers with a specified disability or for those supporting a dependent with a specified disability and Section 80DDB covers expenses incurred for treatment of specified critical illnesses. These deductions are not always claimed as they can only be claimed with specific medical qualification, which means that taxpayers who can claim them often don’t know what they need to provide for the deduction to be claimed, or that they can claim it outside of regular medical insurance claims.
Reviewing the Full Picture Before Filing
Many of these deductions that are not being claimed are not because the taxpayer is not entitled to claim them, but because tax planning is just something done every year towards the end and is limited to investments under 80C. If you are able to analyze all the deductions you are eligible for, usually well in advance of the filing deadline, the discovery of savings that you could have taken advantage of is significant and could actually make a difference in the tax savings you receive.
With a fixed income, there’s a certain need to make sure that, in the tax planning process, all possible deductions are taken, which may make a significant difference in the final tax result. Anagha Consulting helps salaried individuals in tax planning, tax return filing and tax optimisation.