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Key Takeaways:
Existing expenses like tuition fees, home loan EMIs, rent, insurance premiums, and standard deductions can help save tax.
Most deductions are applicable under the old tax regime, so choosing the right regime is key.
Proper documentation and planning are essential to claim these deductions effectively
Filing Income Tax Returns (ITRs) can get tedious for taxpayers. Not only does one have to ensure that they pay their taxes on time, but also make certain that their investments for saving tax are done. If one does not claim eligible deductions, they end up paying more in taxes, which could have otherwise been saved.
However, the common belief that one has to invest in tax-saving instruments to save tax isn’t necessarily true. Whether a taxpayer faces liquidity issues or decides against investing in new tax-saving instruments for any other reason, it is possible to save tax with no investment for the new fiscal year. Here are a few ways in which taxpayers can save tax, without investing in new instruments for FY 2025-26.
Children’s Tuition Fees and Hostel Allowance
Under section 10(14) of the Income Tax Act, 1961, any special allowance given by the employer to their employee towards the education of the employee’s children (a maximum of two), along with the hostel expenditure, is granted an exemption. This exemption for children’s education allowance is restricted to ₹ 100 per month, while the hostel expenditure is restricted to ₹ 300 per month.
Furthermore, under section 80C of the Income Tax Act, the tuition fees for full-time education of maximum two children of the employee, paid to any educational institution in India by their employer is also eligible for deduction of up to ₹ 1.5 lakh.
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Deduction for Interest Paid on Home Loans
For individuals buying a home for the first time, a special provision has been put in place, providing a deduction for the interest paid on home loans. Home loan EMIs consist of a principal component and an interest component. So, as per Section 24(b), interest of up to ₹2,00,000 on house purchase/construction loan can be claimed for deduction. Further, there can also be the case with only partial property construction within five years of taking a loan or the scenario that an individual takes a repair or reconstruction loan. The deductions in this case will be ₹30,000.
Furthermore, under section 80C of the Income Tax Act, the principal component of the EMIs can also be availed as a deduction, with the overall limit being ₹ 1.5 lakh. The tax benefits of self-occupied property are applicable under the old tax regime. Concerning let-out property, the new tax regime allows claiming deductions up to the rental income. Moreover, set off and carry forwards are restricted in the new regime.
Did You Know?
More than 93% of income tax returns were filed online in FY 2023–24 using e filing 2.0.
Source: The Economic Times.
House Rent Allowance: The salaried individuals residing in a rented house can claim HRA exemption. It is applicable as per section 10 of the Income Tax Act, which allows partial or complete tax exemption, based on specific conditions. The calculations to choose the HRA exemption will be based on the following amounts:
Rent if it is less than 10 percent of the salary
Actual HRA amount received
40% of the salary if the taxpayer resides in a non-metropolitan city, and 50 percent if living in a metropolitan city
To claim the tax benefit, the taxpayer has to provide the rent receipts, along with other details, to the employer in order to calculate the exemption amount.
Employees’ Provident Fund (EPF): One of the deductions made from the employee’s salary is the Employees’ Provident Fund (EPF), which has to be taken into consideration while calculating tax deductions. Under section 80C of the Income Tax Act, this contribution made by the employees towards a recognised provident fund is allowed as a deduction, with the overall limit being ₹ 1.5 lakh. The benefit can be claimed under the old tax regime only.
Medical Premium: The premiums paid for individual themself, their parents, spouse or children’s medical claim or contributions toward the Central Government Health Scheme can be claimed for deductions. The amount is ₹ 25,000. Further, as per Section 80D, premiums for parents aged over 60 years old, the deductions can be increased to ₹ 75,000. If the parents are aged less than 60, the claim is ₹ 50,000. Again, the benefit can be used as per the old tax regime.
Life Insurance Premium: The life insurance premiums for themselves, their children and spouse can be claimed under Section 80C. It allows claiming deductions of up to ₹ 1,50,000 under the old tax regime.
Education Loan: Under section 80E of the Income Tax Act, individual taxpayers who might have taken an education loan for higher education, either for themselves, their spouse or their children, can claim a deduction on the interest paid on the loan. However, the deduction is not allowed on the principal component of the loan, and it must have been taken for higher education. The period for this deduction is 8 years, which either begins from the time the repayment period starts or until the interest amount is repaid in full.
Standard Deduction on Employee’s Salary
While calculating the tax liability of all the salaried employees, the employer takes into consideration a standard deduction of up to ₹ 50,000, which is available while filing income tax returns (ITRs). It is applicable under the old regime, while ₹ 75,000 deduction is available under the new regime. Employees must consider the standard deduction while calculating their total tax liability while planning their taxes for FY 2025-26.
Deduction on Interest: Income tax can be claimed on savings accounts, too. As per Section 80TTA of the Income Tax Act, individuals can claim a deduction of up to ₹ 10,000 on taxable income. Further, if individuals are aged above 60, they can claim a deduction of up to ₹ 50,000 on deposits like FD. It is applicable as per Section 80TTB. Both claims are applicable only under the old tax regime.
Leave Travel Deduction: The funds received as leave travel concession or LTA are applicable for claiming deductions under Section 10(5) of the Income Tax Act. It can be claimed for expenditures incurred on individual themself, their siblings, parents, spouse or children. The claim must meet the eligibility requirement, which includes only domestic travel and two journeys within four calendar years. This benefit is also applicable only under the old tax regime.
Agriculture: With no direct income tax deductions on agricultural income in the new tax regime, there lies an indirect taxation method. It is through the partial integration of agricultural and non-agricultural income in the Income Tax Act. It leads to higher tax rates on non-agricultural incomes.
Donations: Donations towards the PM Care fund and flood victims are tax-exempt under Section 80G. The donations towards charitable institutions are open to claiming tax deductions for up to 50 percent of the paid donations. It can be availed under the old tax regime. Further, donations to political parties can be claimed for a 100% tax deduction under Section 80GGB and 80GGC.
Wedding Gifts: The wedding gifts received from direct relatives are tax-exempt. Further, the gifts from friends and known individuals are exempted for up to ₹ 50,000.
Conclusion
Taxpayers can choose not to invest in new tax-saving instruments for various reasons, and can still save tax on certain expenses that are eligible for tax deduction. With proper planning, taxpayers can avail deductions on the expenses mentioned, and can save tax with no investment during the financial year.
That said, if one wants to save tax through new investments, insurance policies serve as favourable tax-saving instruments. The iSelect Star Term Plan from Canara HSBC Life Insurance provides customised insurance plans, offering tax benefits under Section 80C while also providing a safety net for one’s family. With the iSelect Star Term plan by Canara HSBC Life Insurance, policyholders can avail features such as whole life cover, return of premium, multiple payout option and increased coverage option.
Glossary
e filing 2.0: The advanced income tax filing platform by the government of India for simpler and quicker ITR filing.
Income Tax Slab: The structure of tax rates against various ranges of income under the New and Old tax regimes.
Section 80C: A provision of the Income Tax Act for deduction up to ₹1.5 lakh for particular investments.
ULIP: Unit Linked Insurance Plan brings insurance together with equity/debt investment.
Section 10(10D): Tax-free maturity benefits from life insurance policies, subject to specific conditions.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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