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Deductions for Tax Planning

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Deductions for tax planning
To accurately prepare your tax return correctly, it’s important to know what counts as an allowable expense and whether the same is tax-deductible or not. The list below highlights some less known tax-deductible investments/expenditures.

What are tax-deductible expenses?
Tax-deductible expenses are those expenses on which you can claim tax relief.

Tax-deductible items
While most of us know the more common tax deductible items, there are expenses we regularly incur that may not be known to be tax-deductible. This includes:

  1. Stamp duty paid on purchase of house
    We can claim a deduction for stamp duty and registration fees in purchasing a house. Particularly helpful is this benefit for those who have taken out a mortgage toward the end of the year since the principal component in the initial years is lower, so you can deduct the stamp duty paid on the purchase. Section: 80C. Caution: Ensure that you claim the deduction in the financial year of purchase as it cannot be availed later. Maximum permissible deduction: Rs 1.5 lakh
  2. Re-investment of Public Provident Fund (PPF)
    The PPF scheme allows partial withdrawals from the seventh financial year. So you can withdraw PPF and make the re-investment to avail of the deduction.Section:80C. Caution: Loan facility is available from the fourth year, and withdrawal facility is available from 7th year under the PPF scheme. If you are allowed only one partial withdrawal per year, starting the tax-planning process early and estimating the amount you will need will assist you. Maximum permissible deduction: Rs 1.5 lakh.
  3. Deduction for pre-nursery claim relief on children’s playgroup, pre-nursery and nursery fees
    This was introduced in 2015; this is not as widely used as the deduction, but you can claim the deduction of school tuition fees on children’s playgroup, pre-nursery, and nursery fees. Section: 80C. Caution: Only tuition fees can be claimed, e.g.- Annual charges, Transport. Etc. cannot be claimed. Maximum permissible deduction: Rs 1.5 lakh
  4. Interest paid to parents on home loan
    You can claim the deduction for any interest paid on a home loan taken from your parents. The deduction for interest paid on a home loan does not apply only to loans from banks and housing finance companies. Lower-income parents may find this to be particularly useful. Section 24B. Maximum permissible deduction: Rs. 2 lakh. Make sure you pay interest on the loans from your parents and don’t forget to get a certificate attesting to the payment of interest. Also need to include the parent’s PAN in your tax return.

Rent paid to parents
If you live in a house your parents own, you can deduct the rent you pay them. In addition to the house rent allowance (HRA) exemption, your parents are eligible for standard deductions and deductions on municipal taxes paid, resulting in tax savings. See section 10(13A). Maximum permissible deduction:

  • The actual HRA received
  • or the excess of rent paid over 10% of the salary
  • The lower of 50% of the basic salary or 40% if you live outside of a metro area. Caution: Proper rent agreement must be drawn up containing details of rent payable. Also submit rent receipts to employer in order to avoid rejection of the exemption by employer
  1. Deduction for group health insurance
    A group health plan purchased through your employer for yourself, your spouse, your children, and your parents can provide you with deductions just like an independent, retail health plan. Refer to Section 80D for details. Maximum deduction: Rs 75,000*.

(*Total benefit cap, assuming the taxpayer is younger than 60 years old and their parents are older). Please note that you cannot take advantage of the tax benefits if your employer has paid the entire premium. This means that premiums must be paid either directly by you or deducted from your salary.

At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory and other related services, by providing them adequate support and guidance from our end. If you have any questions or wish to know more rarely known investment/deductions for tax planning, kindly contact us.

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