Taxes are something that are unavoidable in any person’s life. While no one likes taxes, yet the government provides a number of ways in which the pain of taxes can be reduced. These are in the form of exemptions you can claim in case you are able to show proof that you spent a part of your income on certain expenses.
While most people are aware of the common tax-saving expenses, there are several others which are not so well known, and even people who actually make those expenses miss the chance to save tax due to lack of awareness. If you are aware of these exemptions, you can spend money on them throughout the year and claim the benefits, instead of having to cough up a bigger amount at once. Listed below are five such expenses that can help reduce your tax burden.
- Repayments – In case you have taken a home loan or an education loan, the monthly EMIs are enough a cause of worry for you. But you can also get an advantage from such repayments by listing them in your tax returns. For a home loan, the monthly EMI is partly used to repay the principal amount and partly used for repaying the interest accrued. At the end of the financial year, the branch manager will provide to you, on request, a statement showing the total principal and interest you repaid in that year. These amounts, with certain limits, are deductible from your annual taxable income. Similarly, if you are repaying an education loan, those EMIs are allowed to be set off from your annual taxable income. (The tax deduction limit: Repayment of Home Loan Principal under Sec 80C – Rs. 1,50,000, Repayment of Home Loan Interest under Sec 24 – Rs. 2,00,000, Repayment of Education Loan Interest only at actuals (no limit) for a period of upto 8 years.)
- Disability – The loss of use of an arm or a leg (or more limbs) is a shattering event. It can not only result in loss of income but it also plays havoc with the mental well-being of the patient. But the silver lining is that you can claim tax deductions for the expenses you incur for your disabled parents, or for yourself if you are suffering from any disability. (The tax deduction limit: Under Sec 80DD, for partial disability (40% and higher), up to Rs 75,000 per year, for severe disability (80% and higher), up to Rs. 125000 per year)
- Charity – When we are in a stable job and are earning well enough to take care of ourselves and our family, we often begin to think about spending some money for those who are less privileged than us. While that is laudable by itself, what many people don’t know is that this good turn can also bring rewards for the donator, by reducing the taxable income by that extent. Many companies enter into tie-ups with charitable organizations and allow you to have a certain amount deducted from your salary every month and donated to a charity of your choice. These donations need not necessarily be for people who are financially insecure. The tax rules also allow you to claim deductions if you have made any donations for scientific research. (The tax deduction limit: Under Sec 80G, different percentages depending on the category of the institution to which donation is being made. Allowable deduction is either 50% of donation amount or 100% of donation amount)
- Business Expenses – Not all of us are employed in jobs. There are several people who run their own business. Our tax laws allow several expenses to be made legally in order to save tax. Some of these examples are – when you take a client or business partner out for lunch, when you are travelling for business purposes, or when you redistribute your profits among the promoters of the firm. (Tax deduction Limit: Several expenses are listed under this category, and no limits specified as such, but you must be able to prove that a certain expense is for a certain purpose)
- Retirals – When people retire, there are certain retiral benefits payable to him. Although these do not need to have an expense linked to them to claim benefits, yet I have added to this article so that you can be aware and plan retirement accordingly. Say you are availing of a voluntary retiral scheme (VRS), then a lump sum benefit of up to Rs 5 lakh is non-taxable. Similarly, a gratuity amount of up to Rs 20 lakh in your hands is non-taxable.