Indirect Route to Tax Savings

You can also do tax saving to claim tax deduction for several expenses, including house rent, children's tuition fees and medical expenses.

Small interest: 

From this financial year, you do not have to worry about paying tax on interest earned on your savings accounts, provided it does not exceed the standard deduction of Rs 10,000. This deduction is available under Section 80TTA to individuals and Hindu Undivided Families.

House rent: 

Your house rent is allowed as deduction, but within limits. If you are salaried, a house rent allowance (HRA) should be part of your salary. The HRA exemption limit is the least of the following: a) Actual HRA received; b) 40 per cent of basic salary (50 per cent for those living in metro cities); c) Rent paid in excess of 10 per cent of basic salary.

If you do not get HRA, you can claim a deduction of up to Rs 24,000 if you and your family (spouse and minor children) do not have a house. You should also not have a self-occupied house in any other place in such a case. In the absence of HRA, the least of the following can be claimed as deduction: Rent paid in excess of 10 per cent total income, 25 per cent of total income and Rs 2,000 per month.

When you receive rent from a property, you can claim a standard deduction of 30 per cent for maintaining the house, irrespective of the amount spent. You can deduct municipal taxes from the rent while calculating your tax liability.

Home loans:

You can claim deduction for both interest and principal payments towards a home loan. The principal amount paid as part of equated monthly instalments (EMIs) of a self-occupied house is eligible for deduction up to Rs 1 lakh under Section 80C. The construction should be done within three years from the end of the financial year in which the loan is taken. The deduction is reversed if you sell the property within five years of purchase.

The interest component can be used to claim up to Rs 1.5 lakh deduction under Section 24B if the house is ready and in your possession. The pre-construction interest payments can be deducted in five equal instalments within the Rs 1.5 lakh limit after the house is ready. If you have rented out the house, you can claim the entire interest as deduction from the rental income.

Education:

Tuition fees for up to two children can be claimed as deduction under Section 80C within the Rs 1 lakh limit.

The deduction is only for tuition fees for full-time courses of institutions in India. Transport, development, hostel and coaching fees do not qualify.

If you have taken a loan for own higher education or that of your spouse or children, you can claim the interest paid as deduction under Section 80E of the I-T Act, without any cap.

Diseases:

Expenditure on treatment of taxpayer or his/her dependants for certain diseases can be claimed as deduction up to Rs 40,000 under Section 80DDB. From 2012-13, expenses on treatment of senior citizens above 60 will be deductible up to Rs 60,000. This is for treatment of specified diseases. You cannot claim this deduction if your employer or an insurance company reimburses the expense.

Under Section 80U, individuals suffering from disabilities such as blindness, hearing impairment and mental illness can claim a deduction of Rs 50,000. If the disability is severe, one can claim a deduction of Rs 1 lakh. If a taxpayer has a disabled dependant, a deduction of Rs 50,000 is allowed. If the dependant has a severe disability, the deduction allowed is Rs 1 lakh.

Donations:

You can avail of deduction up to 50-100 per cent of donations made to charitable institutions under Section 80G. Cash donations beyond Rs 10,000 do not qualify for this incentive. The total deduction for donations cannot exceed 10 per cent of your gross total income. Donations to institutions engaged in scientific research or rural development qualify for deductions under Section 80GGA. Donations to recognised political parties qualify for full deduction under Section 80GGC.