Tax Saving Schemes Other than 80C
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Key Takeaways: Section 80C of the Indian Income Tax Act is the first recourse for the NRI tax saver. But are there tax saving options beyond those under section 80C? Yes, there are and this article will tell you about them.
Everybody with a taxable income wants to save on their taxes. As an NRI, one of the most popular ways to do that is through tax-saving investments under section 80C. But section 80C has a limit of INR 1.5 lakh per year. How can you save more than that? Let's explore:
Section 24B: Interest on Your Home Loan
There's nothing like home sweet home, especially if it also provides a way to save tax. If you have a home loan, you are eligible to claim a deduction on the interest amount you pay towards the loan.
Your home loan interest is eligible for a deduction of up to INR 2 lakh in a financial year under section 24B. There are, however, two conditions:
- You should have taken the loan on or after 1st April 1999
- You should have taken possession or completed construction of the property within five years of the loan date.
This deduction gets limited to INR 30,000 in a financial year under the following situations:
- If the home loan is dated before 1st April 1999
- If you've taken the loan on or after 1st April 1999 for reconstructing, repairing or renovating your property
- If you've taken the loan after 1st April 1999 but you were not able to take possession or complete construction within five years of the loan date.
Interest on a home loan on let-out house property is also eligible for deduction under this section, subject to the following conditions. By definition, a let-out house property is one from which you, as an owner, receive rent. :
- The entire amount of interest paid or payable on your home loan is allowed as deduction. Pre-construction interest (Pre-EMI) is allowed as a deduction in 5 equal annual instalments (Subject to certain conditions of the Income Tax Act of India).
- If the house were let-out for any part of the financial year, it would be considered as let-out property. No concession is available for the duration when the property was self-occupied.
These are the restrictions on setting off of losses from the residential property:
- Suppose the computation of income under sections about a residential property result in losses. In that case, you may set-off such losses against any other income up to INR 2 lakh in any assessment year.
- However, any loss that could not be set off, you can carry forward for the next 8 assessment years.
Section 80 D: Medical Insurance Premium
You can claim deduction on the amount you pay as premium on health insurance for yourself and your family, including spouse, children and parents. If you are under 60 years of age, you can claim deduction up to INR 25,000 (in a financial year) to buy insurance for yourself, your spouse and children. You can claim an additional INR 25,000 deduction to purchase insurance for your parents (under 60 years). If your parents are over 60, you can claim deduction up to INR 50,000. If both you and your parents are above 60, you can claim up to INR 1,00,000 in one financial year as deductible towards premium payments.
Section 80 E: Interest on Education Loan
Pursuing higher studies abroad also has tax benefits. Whether you are an NRI or a resident Indian, if you have taken an education loan for yourself, your spouse or child, you can claim a deduction of the interest amount paid by you. There is no cap on the deductible. The total amount you pay as interest on your loan is deductible for up to eight years or until the interest component of the loan is repaid, whichever is earlier. Please note that the deduction does not apply to the principal amount borrowed. Also, you can avail the 80 E deduction for loans taken for any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government, State Government or local authority or by any other authority authorised by the Central Government, State Government or local authority to do so.
Section 80 EE: Interest on Home Loan
You can claim a deduction on the interest amount you pay towards your home loan under section 80 EEE, only in a scenario where your residential property is eligible under Section 80 EE. You can claim up to INR 50,000 as deduction per financial year. Nonetheless, there are a few stipulations to consider:
- The loan should have been sanctioned between 1st April, 2016 and 31st March, 2017
- The loan amount is below INR 35 lakh
- The value of the residential property is below INR 50 lakh
- You should have no property in your name on the date of sanction of the loan.
Section 80 TTA: Savings Account Interest
Interest earned on deposits in your Savings Bank or Post Office Savings Account up to a limit of INR 10,000 per year is eligible for deduction under Section 80 TTA. You should include this under the income from other sources when you file your taxes to claim the deduction.
Section 80 G: Donations
Supporting causes that are important for you with donations can also earn you tax benefits. Section 80 G allows NRIs to claim 50-100% deduction on donations. The payment must be to specific funds, trusts and institutions such as Prime Minister's Relief Fund, National Defence Fund, etc. You can also claim a 100% deduction under section 80 GGA for donations made towards scientific research or rural development. In some funds, you cannot claim deductions for contributions that exceed 10% of your adjusted total income.
Section 10 (4) (ii): NRE and FCNR Deposits
Under the Section 10 (4) (ii), NRIs may avail tax exemption on the principal amount deposited and the interest accrued on their NRE (Non-Resident External Rupee) and FCNR (Foreign Currency Non-Resident) Accounts and Deposits.
Section 54: Capital Gains Exemption
Section 54 provides exemption on capital gains arising out of the sale of a residential property if you reinvest the capital gains in another residential property within 2 years from the date of sale or have purchased a property up to 1 year before the sale. The new property must be in India and not abroad.
With effect from the Assessment Year 2020-21, the income tax department of India amended Section 54 to include two residential properties. Here are the conditions if you want to claim an exemption under Section 54 if you purchase two residential properties from the sale of one house after the assessment year 2020-2021:
- The exemption applies only if the amount of Long Term Capital Gains does not exceed INR 2 crore
- This exemption is available only once in your lifetime.
Let us look at two examples to know how the amendment will apply to you:
Let us say that you purchased a house in 2006-07 for INR 2 crore and sold it in 2020-2021 for INR 3 crore. If you purchase two properties for a sum total of INR 3 crore (both in the same year, that is 2020-2021) from the sale proceeds, you can claim the benefit under Section 54 since your capital gains are INR 1 crore. However, this benefit will apply to you only once and if you do plan to sell any of your houses in future, you will have to pay a tax on capital gains applicable at that time.
If, on the other hand (under the same circumstances), you purchased a house in 2006-07 for INR 2 crore and sold it for INR 10 crore, you will not qualify for an exemption under Section 54 because your capital gains are more than INR 2 crore.
Tax Saving Schemes – A Summary
Type of Scheme
Home Loan Interest component
Deduction of up to INR 2 Lakh per financial year on Interest Amount
Deduction on premiums, from INR 25,000 up to INR 1 Lakh, based on the age of the insured party
Education Loan Interest component
No upper limit on the interest amount
Home Loan Interest Component
Deduction of up to INR 50,000 (for Residential property only, as per govt. caveats)
Savings Account Interest Income
Deduction of up to INR 10,000
50% to 100% deduction
NRE and FCNR Deposits
Tax exemption on the principal amount and the interest accrued
Sale of Residential Property
Exemption on Capital Gains Tax
Final Note: So, whether you are a resident Indian or an NRI, you can benefit from various tax saving schemes that are covered in sections other than 80C. Together, the many sections offer substantial tax relief.
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Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners. The purpose of the Live eNRIched blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.