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Lesser-Known Tax Deductions That Could Lower Your Tax Burden

It is that time of the year when people visit financial advisors and chartered accountants to file Income Tax Returns and plan investments for the coming financial year. If the financial planning is done in the right manner, you can save a considerable amount of money from your taxable income.

  • 2,858 Views | Updated on: Mar 06, 2024

In the hustle and bustle of daily life, it’s easy to overlook potential avenues for reducing your tax burden. Delve deeper into lesser-known tax deductions specifically tailored for individuals and understand the importance of maximizing your financial efficiency

With recent amendments in the tax regime and the introduction of various investment options, it has become easier to save and invest money. Through this blog, we will highlight the lesser-known income tax deductions that can help lower your tax burden.

Here are some of the legit means that can help you save taxes on your hard-earned money:

Deductions Available under New Tax Regime

The New Tax Regime allows a standard deduction of ₹50,000 for salaried individuals. However, family pensioners can claim a deduction of ₹15,000. In addition, there are the following exemptions and deductions included in the New Tax Regime:

  • Transport Allowance for specially-abled person
  • Interest on a home loan on letting out property
  • Deduction for employer’s contribution to NPS Account
  • Gifts of up to ₹5,000
  • Exemption for Voluntary Retirement Scheme under Section 10(10C)

Reduce Your Tax Burden

Financial investment does not only lower your tax burden but also ensures future financial wealth. Hence, it becomes crucial to fill your bucket drop by drop. Therefore, to ensure your income does not get drained away completely on the income tax, here are some deductions that you can claim while filing ITR:

Health Insurance Premiums

Investing in your health not only ensures a better quality of life but also offers tax benefits. Deductions on health insurance premiums under Section 80D can be a valuable asset in reducing your taxable income.

Capital Losses

Capital losses in the stock market can be used to reduce your tax liability. A long-term capital loss can be offset against long-term capital gain, and a short-term capital loss can be adjusted against both short-term as well as long-term capital gains. In case the loss cannot be adjusted, it can be carried forward to the following 8 assessment years.

Investment in National Pension Scheme (NPS)

You have the right to claim benefits over and above ₹1.5 lakh limit by investing in NPS. The benefit is available under Section 80CCD(1B) of the Income Tax Act. However, the maximum amount that can be invested is ₹50,000.

Joint Home Loan Borrowers

If you have taken a joint home loan, then you can claim maximum tax benefit individually. This implies you can get a tax rebate of ₹1.5 lakhs for principal repayment under Section 80C and ₹2 lakhs for interest payment under Section 24.

Disability

In case you suffer from any disability, you can claim a deduction of ₹75,000 to ₹1,25,000 under Section 80U. You can also claim the deduction under section 80DD in case you have disabled dependents.

Medical Treatment

Under Section 80DDB of the Income Tax Act, a deduction is provided on the expenses of medical treatment of specified diseases such as AIDS, cancer, and neurological diseases. The maximum amount of deduction that you can claim from gross total income is ₹40,000.

Medical Insurance for Parents

Providing medical insurance for your parents not only ensures their well-being but also offers additional tax benefits. Under Section 80D, you can claim deductions for the premiums paid towards your parents’ health insurance. This is particularly relevant for individuals in the 25-50 age group who may have aging parents and want to ensure their healthcare needs are met while optimizing their tax liabilities.

Education Loan

If you have taken an education loan for higher studies, you can claim a deduction on the interest paid for the loan under Section 80E of the Income Tax Act. the deduction is also available for the loan taken for higher studies of a spouse or children.

Repair and Maintenance of Property

Many people are unaware of the deduction available for the interest paid on a loan taken for the reconstruction or repair of the house property. It qualifies for deduction up to ₹30,000, subject to the overall limit of ₹2,00,000.

Invest in Tax-Free Bonds

Consider allocating a portion of your investment portfolio to tax-free bonds. Interest earned on these bonds is exempt from income tax, providing a tax-efficient source of income.

Investment in Infrastructure Bonds

Government-issued infrastructure bonds are designed to promote investments in the infrastructure sector. These bonds, listed under Section 80CCF, offer additional deductions over and above the limit provided by Section 80C. By investing in these bonds, you not only contribute to the development of the country but also optimize your tax planning strategy.

Investment in Voluntary Provident Fund (VPF)

For individuals looking to bolster their retirement corpus, the Voluntary Provident Fund is a compelling option. Contributions made to VPF qualify for deductions under Section 80C. Since VPF offers an attractive interest rate and the contributions are entirely voluntary, it allows you to optimize your tax savings while building a robust retirement fund.

Utilize the Senior Citizens Savings Scheme (SCSS)

If you are in the higher age bracket of 50 years, the SCSS can be an excellent avenue. The interest earned is taxable but qualifies for deductions under Section 80C, helping you optimize your tax planning.

Rajiv Gandhi Equity Savings Scheme (RGESS)

Specifically designed to encourage first-time retail investors to participate in the equity markets, RGESS offers tax benefits under Section 80CCG. Individuals with a gross total income of less than ₹12 lakhs can avail benefits by investing in eligible securities. This scheme not only helps in tax savings but also promotes financial inclusivity and equity market participation.

Tax-Free Interest Income in India

Understanding how to generate tax-free interest income is crucial for financial planning. Here is a list of options:

Savings Account Interest

Interest earned on savings accounts up to a certain limit is exempt under Section 80TTA. Optimize this by spreading your funds across accounts to maximize tax-free interest income.

Fixed Deposits with Senior Citizens Scheme

For individuals above 60 years, fixed deposits under the Senior Citizens Savings Scheme offer attractive interest rates along with tax benefits, making it a win-win for tax planning.

Donations to Charitable Institutions

Contributions to eligible charitable institutions qualify for deductions under Section 80G. It not only supports a good cause but also helps in reducing your taxable income.

Did You Know?

Under the budget 2023, the limit for tax exemption on leave encashment on the retirement of non-governmental salaried workers to increase to ₹25 lakhs.

Wrapping Up

By now, you must have got at least a few new ideas to claim a deduction and save your hard-earned income. However, financial planning and investment is a year-round process. Hence, you should not restrict your financial moves and action only at the time of filing returns. As you navigate the complex landscape of taxes, leveraging these lesser-known deductions and optimizing your interest income can make a substantial difference. A well-planned and calculated investment helps you claim the maximum deduction along with long-term financial benefits. Remember, proactive tax planning is not just a necessity; it’s a strategic tool to ensure a brighter and more secure financial future.

Key Takeaways

  • The New Tax Regime allows a standard deduction of ₹50,000 for salaried individuals.
  • Family pensioners can claim a deduction of ₹15,000.
  • Financial investment does not only lower your tax burden but also ensures future financial wealth.
  • Under Section 80DDB, a deduction is provided on the expense of medical treatment of specified ailments.
  • A well-planned and calculated investment helps you claim the maximum deduction.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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