Income Tax lesser known deductions which taxpayer must know while filing Income Tax Return


We all know about the popularly know deductions like deduction u/s. 80C & 80D. But many times we use to forget to claim many other deductions which are available under the Income Tax Act, which can reduce our tax burden significantly. In this article we discussed 10 such lesser know deductions which taxpayers tend to forget to claim while filing there Income Tax Return.


1. Set off of Capital Loss Against Capital Gain
While most of us know that we need to pay taxes on short term or long term capital gains, not many are aware of the fact that capital losses, if any, can be balanced off against gains. So, for instance, if you have made a long-term capital gain of Rs 15 lakh by selling off your property and long-term capital loss of Rs 3 lakh by selling stocks which are either not listed or are sold off market , the total taxable amount would Rs 12 lakh.
Please note Capital Gain on Sale of Shares sold through Stock Exchange can not be set off against other capital gain as profit from sale of shares of listed companies through stock exchange in exempt.
It is important to note that short term losses can be balanced off against both short term as well as long term capital gains. However, long term capital losses can only be balanced off against long term capital gains.

2. Deductions under section 80GG in respect of rent paid :Deduction to the extent of Rs 2,000 per month or 25 per cent of total income (whichever is less) is available under Section 80GG of the I-T Act in respect of rent paid by an individual on his accommodation, provided the individual does not get any house rent allowance.

3. Medical treatment of specified ailments under section 80DDB:-Deductions of expenses on medical treatment of specified ailments (such as AIDS, cancer and neurological diseases) can be claimed under Section 80DDB. The maximum amount of deduction allowed from gross total income is restricted to Rs 40,000 (which goes up to Rs 60,000 if the age of the person treated is 60 years or more) on condition that no medical reimbursement is received from any insurance company or employer for this amount.
In order to claim this deduction, however, you will have to submit Form 10-1 from a specialist doctor working in a government hospital in India, confirming the treatment of the disease.

4. Deduction under section 80U for Person with disability:-Under Section 80U of the Act, an individual who is certified by the prescribed medical authority to be a person with disability shall be allowed a deduction of Rs 50,000 and an individual, who is certified as a person with severe disability, shall be allowed a deduction of Rs 75,000. W.e.f. 01.04.2010 this limit has been raised to Rs. 1 lakh.

5. Charitable deductions under section 80G: Deduction is also available under Section 80G of the I-T Act in respect of donations made by an individual to certain funds, charitable institutions and so on. There is no restriction on the amount of charity. The rate of deduction, however, is either 50 or 100 per cent, depending on the choice of trust. Also, donations must be made to registered institutions only.This includes any amount contributed to a recognised political party. It can be claimed as a deduction under Section 80GGC (80GGB for corporates). This is a new deduction and was introduced in April 2010. Donations to institutions involved in scientific research or rural development get exemption under Section 80GGA. The donation can also be made to an electoral trust that works for conducting elections. Interestingly, unlike other deductions, there is no ceiling on the amount that can be claimed as deduction. Of course, this doesn’t mean one can claim deduction for cash payments. The deduction is available only if the sum goes into the party coffers. The quantum of deduction depends on the nature of the organisation. For instance, money given to certain establishments, such as the National Defence Fund, the Prime Minister’s National Relief Fund and the Chief Minister’s Relief Fund enjoy 100% deduction.On the other hand, NGOs such as Child Rights and You, Helpage India and the National Children’s Fund give you only 50% deduction. So, it’s a good idea to find out how much deduction is available before you write out a cheque. However, you cannot use this route to evade tax by bringing down your income tax slab. There is a ceiling on the deduction a taxpayer can claim in a year. The quantum of deduction is limited to 10% of the gross total income of the donor. Also, only cash donations are taken into account. Donations of food, clothes and medicines do not qualify for such a deduction.


6. Interest on loan taken for higher education & vocational courses. :- Taxpayers also tend to forget that the interest paid on an education loan taken for higher studies or vocational curses qualifies for deduction under Section 80E of the I-T Act. Also, effective April 1, 2008, the said deduction is also available where the loan is taken for the purpose of higher education of spouse or children of the individual or the student for whom the individual is a legal guardian. Thus, if you have taken a loan for higher education, don’t forget to make your claim. Also remember that the deduction benefit on interest is allowed for maximum eight years, or till the interest is fully paid.

7. Interest paid on a second home loan is fully deductible :- The tax benefits of a home loan are well known. Under Section 24b, one can claim a deduction of up to Rs 1.5 lakh a year for the interest paid. If the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as deduction. If you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or deemed income is taxable. For instance, if you have taken a home loan of Rs 50 lakh at 9.5% for 20 years, your interest payment in the first year will be Rs 4.7 lakh and you can save tax up to Rs 1.09 lakh.

8. HRA as well as home loan benefits:-
If you took a home loan and are still living in a rented place, you will be entitled to:
Tax benefit on principal repayment under Section 80C
Tax benefit on interest payment under Section 24
HRA benefit
Of course, you can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete, the HRA benefit stops. If you took a home loan, got possession of the house, have rented it out and stay in a rented accommodation, you will be entitled to all the three benefits mentioned above. However, in this case, the rent you receive would be considered as your taxable income.

9. Save tax through your family – Simplest way of saving tax is by investing through parents, parent in laws, wife and children. If you invest in the right instrument, the rate of return may be higher as well. Here is how we can save tax through our family members. Read Following Post for more details :-
Tax Planning- Save tax through your family

10. Repairs and maintenance of house property – You will never forget to claim deduction of interest on repayment of your home loan, but not many people know that any interest paid on home loan for reconstruction or repair of the “house property” qualifies for deduction of up to 30,000, subject to the overall limit of 1,50,000..

 
Few tips to Prevent Income Tax Raids.

One should not keep any unaccounted or undisclosed money, property or income popularly known as black money. If such a disclosure is made before its detection by the Income Tax Department, the chances of being trapped in a tax raid are minimized. A tax raid may also be conducted against a person in possession of undisclosed income or property not belonging to him but to someone else. It is therefore important for a person who is in possession or in custody of someone else’s jewellery or other valuables, etc. to ensure that they are duly accounted for.

DOES

1. Make correct disclosure of income and wealth in returns: One should make a full and true disclosure of one’s taxable & exempt income. Similarly, a person’s wealth should be properly disclosed to the Wealth Tax Officer.

2. Comply with summons or notices to prevent a tax raid: – It is absolutely necessary to fairly and properly comply with the summons. Wherever this is not possible, proper adjournment should be sought. Co-operation on the part of a person, whether he is an income tax assessee or not, will ensure prevention of a raid.

3. How to declare exempted or non-taxable income and wealth:- When the entire picture is placed before the Assessing Officer, there is little scope or raid on the grounds of possessing undisclosed income. In view of the relaxed wealth tax exemption limit, many will now be outside the wealth tax net, hence they may enclose their statement of wealth with the income tax return.

4. Preserve important vouchers and other documentary evidence for the acquisition of assets: – It is vital to preserve important vouchers and/or other documentary evidence as proof for their acquisition. This is necessary to prove the acquisition of such assets in case an inadvertent income tax raid takes place and the assessee is called upon to prove the nature and source of acquisition.

5. How to prevent income tax raid on lockers & safe deposit vaults? :-The owner of a locker, should maintain a register recording its contents for disclosure if called upon by the income tax authorities with custodian to get a declaration from the owner regarding the nature and source of the articles to satisfy.

DON’TS

Don’t introduce fresh capital over 10 lakhs.
Don’t introduce new unsecured loans exceed 25 lakhs.
Don’t investment more than 5 times Gross Receipts ( includes agricultural income).
Don’t sale property for lesser amount than Govt. Valuation.
Don’t pay Commission above Rs. 10 lakhs.
Don’t declare total income less than 20% of professional receipts.
Don’t declare profit less than 8% of receipts if you are a contractor who’s GC Receipts exceed Rs.1 Cr.
Don’t adopt project completion method if you are builder.

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