As New Year celebrations draw to a close, the clock starts ticking on another important milestone of the year – tax saving. Although this should be an ongoing exercise, most start thinking about this crucial aspect of financial planning late in the year. If you are among the late starters, here’s a last-minute guide to making the most of deductions and exemptions.

Start by taking a note of the tax saving expenses you already have like child’s tuition fee and home loan repayment. The next step is figuring out the best tax saving investment.

However, before starting, choose your tax regime. From FY2021, you have an option of paying tax under a concessional tax regime which disallows most deductions and exemptions. In both regimes, a rebate is available if your net taxable income is ₹5 lakh or less. “If you opt for deductions up to 20% of your income, the old regime is better. With higher income, it may no longer be possible for you to get to 20% deductions,” says Adhil Shetty, CEO, BankBazaar.com. After deciding, start with tax-saving expenses.

Expenses That Count

Tuition fee: School fee for up to two children qualifies for deduction of ₹1.50 lakh under Section 80C of the Income Tax (I-T) Act. The deduction is not available for donations, development fee and coaching fee.

Life insurance premium: Section 80C of the I-T Act allows up to ₹1.50 lakh deduction for premium paid for life insurance of self or spouse. The maturity amount is tax exempt, except in case of Ulips, where it is exempt only if annual premium of the policy is less than ₹2.5 lakh.

Home loan interest/principal repayment: You can claim ₹1.50 lakh deduction under Section 80C for home loan principal. Stamp duty and registration charges are also eligible for this deduction. You can also claim ₹2 lakh deduction on home loan interest. In case of let-out property, the tax benefit is limited to interest paid. If you are claiming these deductions, you can’t sell the property before five years of the possession, otherwise the deduction claimed will be added to your income during the year of the sale. First-time buyers get an extra ₹50,000 benefit on interest payment.

Health insurance premium: Section 80D of the I-T Act provides ₹25,000 deduction for premium paid for insuring health of self, spouse and dependent children. The Section further allows up to ₹25,000 deduction for premium paid for insuring parents’ health. Up to ₹50,000 deduction can be claimed for health insurance premium for senior citizen parents.

Health expenses: You can claim up to ₹75,000 deduction under Section 80DD on health expenses of a dependent with at least 80% disabilities. In case of severe disabilities, the amount is ₹1.25 lakh. The I-T Act also allows tax deduction for treatment of specific diseases of self or dependent family members for up to ₹40,000. In case of senior citizens, maximum deduction is ₹1 lakh.

Interest on education loan: Section 80E of the I-T Act allows deduction of interest paid on education loan for self, spouse or children. It is available for eight years from the year you start repaying the loan or until the interest is fully repaid, whichever is earlier. There is no deduction for the principal payment.

Any charity money paid to approved institutions can also be claimed as deduction under Section 80G. Section 80GGB and 80GGC allow 100% deduction on contributions to a political party in any mode other than cash.

Employees who do not get HRA and are paying rent can avail up to ₹60,000 deduction under Section 80GG of the I-T Act.

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