Some unconventional methods to save Income Tax

Rahul Sharma, working as senior HR executive in a Pvt. Ltd company, is really worried about his tax deductions. As he has not enough investments to claim tax benefits. Now, he is searching out for some other ways to save more on his income tax. Many people like Rahul, don’t save enough money or don’t have that much of bandwidth to save enough money to get tax benefits. In such situation, you can get tax benefits on not so conventional methods of tax savings, even few of them you are not aware of at the time of investment. Apart from some most sought after tax benefits, you can claim tax rebate on other savings too, if you meet the certain condition. Here is the list of some unconventional methods, which one can use to bring down their tax liabilities.

Some unconventional Income Tax Benefits

Many tax filling portals or websites don’t give taxpayers option to claim below mentioned tax deductions. If the website, tax filling portal don’t ask the relevant questions to claim these benefits. Always try to find out if you are eligible and how you could claim these benefits.

Gain from losses in stocks

The losses you have made in stocks this year can bring down your tax. If you have made any long-term capital gains from the sale of property, gold or debt funds, you can set them off against short-term capital losses in stocks and reduce your tax liability. You can use these short-term capital losses to set off against both short-term capital gains as well as taxable long-term capital gains.

House rent acceptable for tax reduction

In metros and large cities, house rent can be the part of 40-50% of total household monthly expenses. Therefore, the house rent allowance (HRA) for salaried individuals is exempted from tax benefits upto a certain limit. If your salary components doesn’t include HRA then you can claim HRA deductions for the rent paid under Section 80GG.

Tax benefits for certain diseases

The treatment of a chronic illness can be a drain on the finances of a taxpayer. This is why the Income Tax Act allows a deduction of Rs 40,000 if one has a dependant who suffers from any of the ailments specified under Section 80DDB. The deduction is higher at Rs 60,000 if the patient is a senior citizen.

The illnesses include neurological diseases (dementia, dystonia musculorum deformans, motor neuron disease, ataxia, chorea, hemiballismus, aphasia and Parkinson’s disease), malignant cancers, full-blown AIDS, chronic kidney failure and haematological disorders (haemophilia and thalassaemia).

Disabilities also eligible for deduction

If you or any of your family member suffer from any physical or mental disability then you can claim a tax deduction under Section 80U. You can claim tax deduction of Rs. 75,000 for self and Rs. 50,000 for disabled dependent. Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness.

Donations get you tax benefits

The taxman is generous to the people who have been kind. Donations given to recognised organisations are eligible for tax deduction. This includes any amount contributed to a recognised political parties, donation under President’s Relief Funds, Donation to approved organisations, etc. It can be claimed as a deduction under Section 80GGC (80GGB for corporates). This is a new deduction and was introduced in April 2010.

Education loan interest is fully deductible in Income tax

The cost of higher education is increasing financial burden on family budgets and forcing parents to borrow for their children’s professional and higher education. The interest paid on an education loan is fully deductible from taxable income under Section 80E.

Till a few years ago, this deduction was available only to the borrower. Now, even a parent or a spouse can avail it. What’s more, this includes loans taken for vocational courses. If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for upto eight successive years, starting from the year in which the interest is first paid.

Interest paid on a second home loan is fully deductible

The tax benefits of a home loan are well known. Under Section 24B, one can claim a deduction of upto Rs 1.5 lakh a year for the interest paid on the second home loan. If the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as deduction.

HRA as well as home loan benefits

This might come as a surprise to many people, but you can claim both HRA exemption as well as tax benefits of a home loan. However, this benefits comes with a clause. So, if you have taken a loan to build a house in your home town and live on rented home in another city, you can claim both the HRA exemption as well as tax benefits for the interest paid on the home loan. In the highest tax bracket, a deduction for Rs 1.5 lakh will bring down your tax by Rs 46,350.

Your family can reduce your tax

When parents invest in the name of their children, the income earned is clubbed with that of the parent who earns more and is taxed at the applicable rate. However, there is a small deduction of Rs 1,500 available per child, with a maximum limit of two children. So, if you open a fixed deposit in your child’s name, interest of up to Rs 1,500 will not be clubbed with your taxable income.