Pranav Sakhadeo, CA
Most of you might be relieved at having made our final income tax declarations for 2016-17 so as to avoid any last-minute deductions by HR. But think again. Did you submit all the documents to claim the deduction? Take guard, for the taxman is watching.
What could happen, you ask? If you are not able to prove your claim to a deduction owing to inability to submit valid documents, the claim will be rejected by the Income Tax Department and a penalty and (interest if applicable) will be imposed. The taxman could ask you to cough up a penalty of 100-300% on the tax payable, while the rejected deduction amount will also added to your income and you will be liable to pay tax thereon.
The message: Make sure you are eligible to claim a deduction on expenses/ investments and double-check the proofs that you submit.
Don’t fake that bill
Let us examine the paper-trail that you have to maintain to claim some popular and some unknown income-tax deductions:
House-rent allowance (HRA)
House Rent Allowance is a common component of everyone’s salary. Even though it is included in salary, it is not completely taxable. HRA gets exemption under section 10(13A) of the Income Tax Act, 1961, according to the below parameters:
- Quantum of exemption (least of the following):
- Actual HRA.
- 50% of salary if living in metros. 40% of salary for non-metros.
- Excess of rent paid annually over 10% of annual salary.
- Rent receipts.
- If annual rent claimed exceeds Rs 1 lakh (PAN of the landlord and the rental agreement must be produced).
- Electricity bills
In case you are claiming rent from parents, make sure that the property is registered in the name of the parent (mother or father) you are paying rent to. Moreover, make sure you pay rent to a dependent relative (who falls under a lower tax slab; paying rent to spouse should be avoided). This helps you save on the family’s overall tax outflow. Lastly, so pay the amount to the relative’s account rather than just claim the benefit. Not paying actually may cost you the exemption.
Leave Travel Allowance/Concession:
The leave travel allowance/concession forms part of every employee’s cost to company (CTC). You can claim this deduction if you go on vacation either alone or with family (family here includes spouse, children, dependent parents and siblings). You can claim the entire LTA amount received or the amount you actually spend, whichever is lower. The only proofs required are copies of bills/ indicating expenditure incurred on travel by rail or air.
While economy-class travel is exempt in case of air travel, first class air-conditioned travel fare is allowed for a rail commute. In other cases, an amount equivalent to air-conditioned first class rail fare for the journey by the shortest route, is exempt. You can claim deduction for any two journeys in a block of 4 years. The current block is 2014 to 2017.
Every individual is eligible for a deduction of Rs 15,000/- on medical expenses each financial year, provided that valid bills for the above amount are submitted to the employer. Expenses incurred on medical treatment in a government or private hospital for his own self, spouse, children, brother/sister and parents. Surprisingly, medical bills are among the most faked claims, even this is among the highest expense heads for a household (above the limit of Rs 15,000). A simpler solution is to maintain your bills regularly.
Investments and taxes
Now let us look at investment-linked deductions. For almost every salaried taxpayer, Section 80(C) is the holy grail, comprising deductions for payments on:
- Life insurance policies
- Public provident fund/ Superannuation fund
- Tuition fees for up to two children
- Principal paid on home loan
- Fixed deposits with at least a 5-year tenure
- Investment in ELSS mutual funds
- Investment in pension funds
- Senior-citizen savings schemes
- National Savings Certificates
*- All these deductions are available to a maximum extent of Rs. 1,50,000/-.
For investment-linked deductions, the proofs to be submitted include premium payment receipts or the relevant account statements and there is little scope to submit a faulty/ fake claim. But the point to be noted in case of investment-linked deductions is that the money invested goes out of your pocket; if there is no tax deduction, it’s your purse that gets pinched. Done right, you can avail the dual benefit of making an investment (that pays in the long term) and also claiming a deduction for the same (saves tax in the short term). You also need to be aware of the exact amounts exempt under various categories (beyond Sec 80C) so that your claims get a smooth passage under the taxman’s lens.
National Pension Scheme (Section 80CCD)
With the amendment in the Budget 2016, in view of promoting the National Pension Scheme, the government has granted deduction to an extent of Rs. 50,000 over and above the basic deduction of
Rs 1,50,000/- under section 80C.
Mediclaim (Section 80D)
Availing a mediclaim (over and above the cover extended by your employer) is very essential. Very few people know that an individual assessee can claim Rs 55,000 as deduction for medical insurance during a financial year. An individual gets the benefit of Rs. 25,000 for medical insurance for self, spouse’s and children’s health. An additional benefit to the extent of Rs. 30,000 is available for medical insurance of parents aged 60 years or more. The proof required to be submitted here as in case of other Sec 80 C deductions is only the premium payment receipt.
Treatment of handicapped dependents (Section 80DD)
You can claim a deduction of up to Rs 75,000 for normal disabilities and up to Rs 1,25,000 for severe disabilities, in case you have handicapped dependents. The person making the expenditure and thereby claiming a benefit needs to produce a bonafide certificate from the medical authority for claiming this deduction.
Deductions if you have aged parents
Specialised medical treatments (Section 80DDB)
Expenses on medical treatment by neurologists, oncologists, urologists, haematologists, immunologists or such other specialists are eligible for deduction. While the deduction is capped at Rs 40,000 for a person aged 60 and below, for senior citizens the cap is higher at Rs 60,000/-. Those aged 80 and above can claim Rs 80,000. One only needs to only submit the prescription provided by the aforementioned specialist(s) and bills provided by the doctor’s clinic, pharmacies where the specialised drugs are purchased.
Interest on education loans (Section 80E)
Pursuing higher education is a costly affair and is thus funded by a bank loan. The interest paid on such loans (whether during or after the moratorium period) can be deducted one’s income for a period of eight years without any limit. A person can borrow funds for his own higher education or for his spouse, children and claim the benefit. The interest certificates provided by the bank must be submitted to claim this deduction.