Tax saving without investing? Seems like a dream, isn’t it? But yes, it’s true! There are certain exemptions and certain deductions which you can claim and gain the tax savings without investing a penny. Generally, these will come in the form of a loss from a certain head of income or certain expenses. So why wait? Let’s see what all is there in store for you.
Housing loan benefit
Those of you who have purchased the house by obtaining the housing loan will get benefit from such loan from your taxable income. Want to know how? The principal repaid during a financial year in the form of EMIs will form part of section 80C deduction income tax act (up to Rs.150000). On the other hand, you will also be eligible to claim loss under the head “Income from house property” with respect to interest paid each year.
Where self-owned house properties are eligible for interest deduction up to Rs.200000, rental properties have the privilege to avail unlimited interest claim. However, the overall loss one can claim under the head of House Property is restricted to Rs 2 lakh only in a financial year. The unclaimed amount can be carried forward to the next year. Carry forward is allowed upto 8 years. So practically whatever you are spending on loan repayment i.e. interest and principal both, will earn you a manageable tax deduction.
Additionally, second homes are eligible for standard deduction @30% also from the annual value (for deemed let out homes) or rent received (for let out properties). This results in just 70% of rent or annual value taxed and then setting it off with interest claim.
Deduction under section 80E is available to those taxpayers who have taken the education loan for higher studies for himself, spouse and children. However, this deduction is limited to the extent of interest paid on such education loans. There is no upper limit of interest to claim under this section. So whatever is your interest cost, you can claim fully. This deduction is restricted to the period of 8 years or term period of loan repayment whichever is earlier.
Tax saving with respect to section 80E will be hence, available without investing in any of the tax saving instruments. Rather, this is the benefit available to those paying interest on education loan, even if it is for higher education courses abroad.
This is one more expense which forms part of Section 80C deduction. Such deduction can be claimed for the maximum of two children. But, you can claim tuition fees paid for both the children for any academic year. This deduction cannot be claimed for any donation or coaching class fees etc.
Employees EPF contribution
Every salaried employee is likely to get his salary mandatory deducted for EPF (Employees Provident Fund) which forms part of retirement benefit. Apart from its post-retirement benefits, you can claim deduction under section 80C with respect to such contribution to EPF. Since, higher the salary, higher will be the EPF contribution, if you are already in higher tax brackets, it will be evident that your section 80C deduction threshold will be fully exhausted with this just one deduction. This will leave no room or requirement for further tax saving investments unless you are investing to save rather than just save taxes.
LTA (Leave Travel Allowance)
The Income Tax department has already taken note that people spend on travel and has enlisted LTA as one of the valid vacation based deductions. LTA is available to most of the employees as a part of their CTC. However, this portion of your salary structure can only be exempted subject to certain restrictions.
- LTA exemption can be availed only for travel expenses i.e. to and fro expenses with respect to a travel destination. This means that no exemption for hotel expenses, local conveyance or sightseeing etc.
- It can be availed only up to certain limits as specified in the rules. For e.g. if you are traveling by air, then LTA can be exempted only up to fare equal to the economy fare of the airline.
- This exemption is not available for overseas travel, hence if you are having combined plans of domestic and foreign travel, you better take separate tickets for domestic and foreign travel, since you can claim domestic travel expenses only.
If you are staying in a rented apartment, then a sizable amount of your income is spent on paying rent. You can use this expense to lower your tax liability. If you are salaried, then you must be receiving House rent allowance as part of your CTC. You will be eligible to claim HRA exemption as prescribed in Income tax act.
If you are not salaried or your employer doesn’t provide you with HRA as part of your CTC, then what to do? You can still claim the benefit of your rent paid under section 80GG upto 5000 per month.
So these were some of the exemptions or deductions that you can avail without making any investments. This will help you to reduce tax liability by making use of the expenses you already make. Apart from the above, you are also eligible to get a standard deduction of 50,000 if you’re salaried. If you have any further queries and to plan your taxes, you can get in touch with one of our Tax experts who can guide you to lower your tax outgo.