An expense is not always a bad thing. Sure, if you let your outlays get out of control, it could wreak havoc on your budget. But if you plan your expenses and your finances right, some of the costs you may face can actually turn out to be beneficial. If that sounds a little too cryptic for your liking, let’s get straight to the heart of the matter.

 

Some expenses can offer you tax benefits. These costs can be claimed as deductions from your taxable income, thereby bringing it down and reducing your overall tax liability.

 

Want to know what these expenses are, so you can make full use of the benefits they come with? Well, in that case, here are 5 expenses that you can claim as tax deductions.

 

1. Your life insurance premium

If you have purchased a life insurance policy with the regular or limited premium option, you will no doubt be paying premiums periodically. This could be on a monthly, quarterly, semi-annual or annual basis.

 

The annual premiums that you pay for your life cover can be deducted from your gross income up to Rs. 1.5 lakhs each financial year. This is as per section 80C, read with section 80CCE, of the Income Tax Act, 1961.

 

So, for instance, if you pay Rs. 1 lakh as your premium each year, you can claim the entire amount as a deduction. On the other hand, if your annual premium is Rs. 2 lakhs, you can only claim Rs. 1.5 lakhs as a deduction. This is all subject to other investments/expenses eligible under section 80C you may have.

 

2. Your health insurance premium

Like your life insurance premiums, your health insurance premiums can also be claimed as a deduction, according to section 80D of the Income Tax Act, 1961. This benefit is available whether you have purchased the health insurance plan for yourself, your spouse, kids or even your parents. The only caveat is that you should be paying the premiums for the policy.

 

Here is a closer look at the maximum amount of deduction you can claim each year, for your health insurance premiums.

 

Policy taken for

Whether the policyholder is a senior citizen

Maximum amount of deduction allowed u/s 80D

Self, spouse or child

No

Rs. 25,000

Self, spouse or child

Yes

Rs. 50,000

Parent

No

Rs. 25,000

Parent

Yes

Rs. 50,000

 

3. Tuition fees for your children

Section 80C of the Income Tax Act comes to your rescue once more, because the tuition fees you pay for your children’s education are allowed as a deduction. The limit is Rs. 1.5 lakhs per year, and each assessee can claim the deduction for two children, at most.

 

Tuition fees include the charges paid to any school, college or university in India. Coaching class expenses and other costs such as hostel fees are not included.

 

The scenarios below will explain the deduction for tuition fees better.

 

Scenario

Maximum amount of deduction allowed

2 children, with annual tuition fees as follows:

  • Rs. 50,000 for the first child
  • Rs. 60,000 for the second child

Rs. 1,10,000

(Since the tuition fees pertain to two children and do not exceed Rs. 1,50,000)

2 children, with annual tuition fees as follows:

  • Rs. 90,000 for the first child
  • Rs. 80,000 for the second child

Rs. 1,50,000

(Since the dedication is limited to Rs. 1,50,000)

3 children, with annual tuition fees as follows:

  • Rs. 50,000 for the second child
  • Rs. 70,000 for the third child

Rs. 1,20,000

(Since the deduction is limited to two children per assessee)

 

This is subject to other investments/expenses eligible u/s 80C you may have.

 

4. Your home loan EMIs

Even your home loan repayments can help you save tax. Your home loan EMIs have two components - the principal and the interest. Each of these components comes with its own tax benefit.

 

Here is a closer look at the different deductions you can claim under the Income Tax Act, 1961, for the home loan EMIs you pay each month.

 

Under section 80C of the Income Tax Act

The principal component of your home loan EMIs can be deducted from your total taxable income up to Rs. 1.5 lakhs each year (subject to other investments/expenses eligible u/s 80C) .

 

Under section 24 of the Income Tax Act

You can also claim the interest component of the home loan EMI as a deduction, as explained below.

  • In case of a self-occupied property, the maximum amount of deduction allowed is Rs. 2 lakhs per year.
  • In case of a let-out property, there is no upper limit on the amount.

 

Under section 80EEA of the Income Tax Act

You can claim additional benefits on the interest portion, apart from the tax benefits available under section 24. The maximum amount of deduction available under this section is Rs. 1,50,000.

 

To be eligible for this tax benefit, you need to satisfy the following criteria.

  • You must be a first-time house owner.
  • Your home loan should be sanctioned by the financial institution between 1st April, 2019 and 31st March,2022
  • The value of the property for which you availed the loan should be Rs. 45 lakhs or lower.
  • The amount of interest has not been claimed as deduction under any other section of Act.

 

5.The cost of home renovations

Lastly, if you have renovated your house or added improvements such as an additional floor or an extra room, make sure you save the bills. That’s because these expenses can also be claimed as a deduction if you eventually decide to sell your property.

 

When computing the capital gains on the sale of your house, you can claim these costs as a deduction from your purchase price. The benefit of indexation also applies to these costs, so they are adjusted for inflation.

 

Summing up

So, you see how some of your expenses can turn out to be beneficial too? In case you have any of these expenses, make sure you claim the appropriate tax benefit each financial year. That way, the burden of tax is reduced and you can save more each year. And you can then redirect those savings to your investments.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.