Even though not an expense, the contribution to Employees’ Provident Fund (EPF) is primarily an involuntary outflow unless one voluntarily increases the contribution. Check your (employee’s) total contributions for the year and count it towards Section 80C benefit. As a salaried individual, an employee contributes 12 per cent of his basic pay towards EPF which qualifies for tax benefit under Section 80C. The employer is supposed to match the employee’s minimum contribution of 12 per cent of the basic pay but the employee is not entitled to take tax benefit on it. For current FY 2019-20, the government is yet to notify the interest rate for EPF. However, for FY 2018-19, the EPF earned 8.65 percent tax-free interest.
Health insurance premiums
For health insurance premiums towards self, spouse, children and parents, the maximum deduction that can be availed is capped at Rs 25,000 a year, provided the age of the individual is not above 60. If the premium paid by individual is towards health policy for a parent (senior citizen with age 60 or more), the maximum is capped at Rs 50,000. Illustratively, if someone in the 30 per cent tax slab pays Rs 10,000 premium, the tax liability reduces by about Rs 3,000 and there’s a health cover to meet medical expenses.
And yes, if you are waiting to undergo a health check-up, go for it. A maximum of Rs 5,000 spent on preventive health check up can be availed as deduction under section 80D of the Income-tax Act, but this limit is within the overall cap of Rs 25,000 or Rs 50,000 (whichever is applicable) and is not exclusive of it.
It is often suggested by financial planners to initiate one’s financial planning process by buying a health insurance cover. Buy adequate coverage for self and family members and, if already bought, even renewal premium qualifies for tax benefit under Section 80D.
However, if your parents are above the age of 60 years and not covered under any medical policy, then medical expenses incurred can also be claimed as deduction under section 80D for maximum up to Rs 50,000 in a financial year.
Home loan principal repayment
If you have taken a home loan, the principal repaid qualifies for tax benefit under section 80C. The equated monthly instalments (EMIs) of the home loan constitutes both principal and interest. You may ask your home loan lender to issue a statement showing the provisional break-up of principal, interest for the entire year. Even partial or full principal repayment made during the year qualifies for tax benefit.
Home loan interest payment
The interest component in the EMI can be claimed as deduction from "Income from house and property" under Section 24. The maximum tax deduction allowed under this section is Rs 2 lakh for self-occupied property for which the loan is taken. And if it is an under-construction property, the benefit is delayed. After possession, provided it happens within five years, the pre-construction (pre-completion) interest can be claimed from the when the construction (pre-completion) interest can be claimed from the when the construction is complete and after getting possession, in five equal instalments.
Homebuyers who have bought house in the affordable housing segment in FY 2019-20 can claim additional deduction under Section 80EEA.
Under this section, additional deduction of Rs 1.5 lakh is allowed for interest paid on loans taken up to March 31, 2020. This deduction is available for purchasing an affordable house of Rs 45 lakh.
Tuition fees
Parents can also claim deduction for tuition fees for a maximum of two children within the overall limit of Rs 1.5 lakh under section 80C.However, any payment towards development fees or donation to institutions is excluded. And if both parents are taxpayers, then deduction for tuition fees can be claimed by the parent who has made the payment.
Say, if A made the payment for his daughter’s school fees of Rs 1.7 lakh in FY 2018-19, he can claim Rs 1.5 lakh in his return under section 80C (maximum limit of section 80C is Rs 1.5 lakh). The remaining amount of Rs 20,000 cannot be claimed by A’s wife. However, if A has another child, he and his wife can plan to pay school fees of the two kids between them. A can pay for child 1 and his wife can pay for child 2. This way the payment made can be claimed by both separately in their tax returns. The one making the payment can claim the amount paid in his/her tax return.
Educational loan
The interest paid on an education loan for self, spouse, children, or for a student under your guardianship qualifies for tax benefit. However, loans taken for siblings and relatives do not qualify. The amount paid as interest in a financial year is eligible for deduction from gross total income without any limit, thereby reducing one’s total taxable income and tax liability. Only the interest portion qualifies for tax benefit and not the principal amount repaid.
To claim this deduction, make sure that the loan is taken for higher education, i.e., any course pursued after completing 12th standard. This deduction is available for eight years, starting from the year in which the interest payment began. One will get the full amount of interest paid as the deduction for eight years from the date of taking the loan or until the interest is paid in full (whichever is earlier). To get income tax benefits under Section 80E, you must take the education loan from any of the scheduled banks in India or from the two notified financial institutions, Credila Financial Services and HDFC.
What you should do
Although there is nothing wrong in saving tax through involuntary means or expenses, it always better to have a financial plan in place and choose tax-savers in sync with your goals. After all, saving for a long term goal by using the tax breaks is what you should do. Further, you should ideally start tax-saving in the beginning of the financial year.