For the financial year 2019-20 (AY 2020-21) if your net taxable income does not exceed Rs.5 lakh, you are entitled to claim rebate up to Rs.12500/- under section 87A of IT act and you need not pay any tax for your earnings of the year. However, if your taxable income exceeds Rs.5 Lakh, even by a small amount, you are not eligible for tax rebate under section 87A and you have to pay full tax as applicable under usual tax-slabs. So it is important for you to reduce your taxable income to below Rs.5 lakh. Although investments made under Section 80C does offer a major tax-saving deduction, there are other sections that you can explore to reduce tax liability. Here are some important tips about how you can save tax.
- In addition to the overall ceiling of Rs.1.50 lakh, an investor can contribute Rs.50000/- to NPS and claim deductions under Section 80 CCD (1B). Hence the total tax benefit for investing in NPS under Section 80 CCD (1) and Section 80 CCD (1B) is Rs.2 lakh. Only an investor in Tier I account can claim the above tax benefits.
- It is possible to claim donations with 100% or 50% deduction. Tax rebate can be claimed on specified donations to prescribed funds and institutions. Tax benefit u/s 80G is eligible for the amount of donation within 10% of gross income. Donation in excess of 10% gross income in a financial year is not eligible for tax exemption.
- In the financial year 2019-20, Standard deduction for salaried persons and pensioners increased from Rs.40000/- to Rs.50000/-.
- Individuals and HUF are eligible for income tax deductions u/s 80 TTA for total interest received on savings account up to Rs.10, 000/- held in Bank, Post office, and co-operative society. Non Residents are also eligible for this deduction.
- If you are a Senior citizen, deposit interest (including SB and recurring Deposits interest) up to Rs.50000/- in a financial year are exempted from tax under Sec.80TTB. Senior Citizens whose aggregate annual deposit interest income exceeds Rs.50,000/- need to pay Income tax only for deposit interest income over and above Rs.50,000/-.
- You can claim house rent exemption and also interest deduction on housing loan simultaneously if you are living in a rented house at your place of work and the financed house in another place (Town/City).
- House rent paid up to Rs.5000/- (Rs.60000/- per annum) is deductible under section 80GG of IT act, even if the employer does not give HRA. However, it is important that the rented house should not be owned by the spouse or minor child of the claimant. However, if you live in your own house, the HRA received by you is fully taxable.
- If a flat is purchased jointly with your spouse and also repaying the housing loan jointly, then both of you can claim proportionate deduction up to Rs.2 lac each for the interest paid on the home loan.
- Additional deduction of Rs.1.5 lakh for interest paid on loans for affordable housing (purchase of houses up to Rs.45 lakh) borrowed up to March 31, 2020. This will come up to enhanced interest reduction of up to Rs.3.5 lakh on loans for self-occupied properties of affordable homes.
- Interest paid on home loan taken from the employer, friend or private lender is also eligible for tax deduction under section 24 of IT act provided a certificate should be obtained from the lender on this effect. However, principal repayment of such loan is not eligible for deduction under Sec 80C.
- A deduction of Rs.25, 000 can be claimed as deduction under sec 80D for insurance of self, spouse and dependent children. An additional deduction for insurance of parents is available to the extent of Rs.25, 000 if parents are less than 60 years of age or Rs.50, 000/- if parents are more than 60 years old. In case, a taxpayer’s age and parents age is 60 years or above, the maximum deduction available under this section is to the extent of Rs.100000/- (Rs.50000+Rs.50000=100000)
- The amount spent on preventive health check-up (maximum of Rs.5000/-.) is subsumed under the above limit under sec 80D. Payment for preventive health check-up (measures taken for disease prevention, as opposed to disease treatment like master check -up etc.), however, can be made in cash.
- Disability related tax benefit in case of the dependent spouse, child, parent or sibling who is disabled. A deduction of Rs.75000/- for partial disability and Rs.125000/- for severe disability. The full amount of deduction will be allowed, without insisting bills/insurance premium paid by the income tax office.
- Tax rebate allowed on medical treatment expenditure for treatment of specified diseases like malignant cancer, or AIDS for self and dependents, the deduction allowed up to Rs.40000/-under section 80DDB
- From FY 2018-’19 onwards increase in deduction limit for medical expenditure for certain critical illness like malignant cancer, or AIDS increased to Rs.1 lakh for all senior citizens of above 60 years under section 80 DDB.
- House rent exemption is limited to the lowest among the following.
- Rent paid less 10% of salary (Salary means Basic + DA)
- 50% of salary if house is situated in Delhi, Mumbai, Kolkata, and Chennai or 40% of salary in other cities.
- Actual HRA received
- Telephone charges including data charges reimbursed by the employer is exempt from tax.
- You can claim income tax deduction for interest paid on education loan availed for self, spouse or his/her children u/s 80E of IT Act. The guardian appointed by the Court for a minor student is also eligible for tax deduction under the same section. One more benefit is that no upper limit for claiming deduction either on the amount of interest paid or rate of interest paid. The deduction can be claimed up to 8 years or closure of the loan whichever is earlier. If the interest is paid during the moratorium period, the time limit of 8 years begins from the date of the first repayment of interest on the loan. It is important to note that the tax benefit is restricted for education loan availed from the bank, notified financial or charitable institutions.
- Securities Transaction Tax (STT) will not be levied on the value of the contract but on the difference between the strike price and market price. It will reduce effective transaction cost. At present purchaser has to pay STT levied at 0.125 of settlement price in option price exercised and the seller has to pay STT at the rate of 0.05% on the option premium.
- Lump-sum withdrawal of 60 %( earlier 40%) from National Pension scheme is now tax free at maturity. Increase in deduction towards NPS contribution for all central government employees to 14% of basic pay from up from 10%
- In the budget announcement of 2019, holding period of immovable property lowered to 24 months from 36 months for the Long term capital gain (LTCG*) purpose. The base year for computing indexation shifted to April 1, 2001 from April 1, 1981. The LTCG tax is at 20% plus indexation. The short term capital gain is taxable at the slab rate. The highest rate being 30%.
- Tax exemption on long term capital gain on sale of residential house will be available for investment in up to two residential house properties located in India against one earlier. However, this option can be exercised only once in a life time. (The period prescribed for investing the LTCG*s in new house properties in India either one year before or two years from the date of sale of the old house. This tax benefit is also available if the tax payer builds a residential house within three years of selling the old house.
- In the budget 2019 announcement, period of exemption for capital gains arising from sale of house for investment in startups extended to March 31, 2021.
[Long Term Capital Gain means gain from sale of listed securities which are held for more than 12 months and immovable property held for more than 24 months and all other types of capital assets including debt oriented MFs held for above 36 months. Short Term Capital Gain means gain from sale of listed securities which are held for less than 12 months and immovable property held for less than 24 months and all other types of capital assets including debt oriented MFs held for less than36 months.]
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