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Little-known tax benefits

Most of us are aware of the tax benefits on investments, medical insurance and the tax advantages of a home loan. Here are some inconspicuous sections of the tax law under which you can claim further deductions.

Print Edition: July 9, 2009

Most of us are aware of the tax benefits on investments, medical insurance and the tax advantages of a home loan. Here are some inconspicuous sections of the tax law under which you can claim further deductions.

DONATIONS
The tax authorities are all for philanthropy. Donations to select organisations and charitable causes attract tax deductions of 50-100%.

Who is eligible? Donations made to specified organisations and charities are eligible for this deduction. Also, only cash donations are taken into account. Those in kind, like food, clothes and medicines, do not qualify.

Deduction: Under Section 80G, donations to some charities get 100% deduction, while others get 50% deduction. This benefit is subject to a ceiling of 10% of the gross total income of the taxpayer. Donations to institutions involved in scientific research or rural development get exemption under Section 80GGA.

How to claim it: A stamped acknowledgement from the recipient is proof of the donation. Such receipts also mention the organisation’s eligibility and the extent of the deduction that the donation will enjoy.

DISEASES
The treatment of certain diseases can be long-drawn and expensive. Therefore, anybody who suffers from any of the specified diseases or has a dependant who is a patient, is eligible for certain deductions.

Who is eligible? Any resident individual can claim this deduction. The ailments eligible for deduction are neurological diseases (including dementia, dystonia musculorum deformans, motor neuron disease, ataxia, chorea, hemiballismus, aphasia and Parkinson’s disease), malignant cancers, full-blown AIDS, chronic kidney failure and haematological disorders (haemophilia and thalassaemia). Dependents can include spouse, children, parents and siblings. However, the patient should be wholly or mainly dependent on the taxpayer and should not have separately claimed deduction for the disability.

Deduction: Up to Rs 40,000 a year spent on the medical treatment is deductible from the taxpayer’s income under Section 80DDB. If the patient is a senior citizen (above 65 years), the deduction is up to Rs 60,000 a year. However, no deduction is available if the amount spent is reimbursed by the employer or an insurance company. If the taxpayer gets a partial reimbursement of the expenses, the balance can be claimed as deduction.

How to claim it: One needs a certificate of the illness from a doctor in a government hospital. The doctor should be a specialist in that field.

RENT
The exemption offered on HRA is a big relief for salaried taxpayers. But what if someone does not get HRA or if he is self-employed or a businessman? He can still claim exemption for the rent paid.

Who is eligible? Any individual who is paying rent can claim this deduction, provided he does not get HRA. Also, he or his spouse or minor child should not own a house in the city where he stays and he should not be claiming tax benefits for a self-occupied house at another place.

Deduction: Under Section 80GG, the least of the following three can be claimed as deduction: rent paid less 10% of total income; or Rs 2,000 a month; or 25% of total income.

How to claim it: A declaration on form 10-BA that he is paying rent is required to be filed by the taxpayer.

POLITICAL CONTRIBUTIONS
It actually pays to have political leanings and contribute to your favoured party. You can claim deduction for the amount chipped in, provided the payment was made through a cheque and you have a receipt for it.

Who is eligible? Any resident individual can claim this deduction. The contribution should have been to a recognised party.

Deduction: Under Section 80GGC, you are eligible to claim full deduction for the amount given to a recognised political party.

How to claim it: A stamped receipt from the political party is proof of the contribution.

EDUCATION LOAN
The rising cost of higher education, especially professional courses, is rued by all. The tax department doesn’t stop at bemoaning the rising fees; it offers practical help. A loan taken for higher education is eligible for a deduction. In the highest tax slab, this reduces the cost of the borrowing significantly.

Who is eligible? Only loans taken for full-time graduate or post graduate courses in engineering, medicine and management, or for post graduate courses in applied pure sciences (including mathematics and statistics) from a recognised institution are eligible for this benefit. The loan should have been taken for yourself, your spouse or your children. A loan taken for siblings and other relatives will not qualify for deduction. Similarly, loans for part-time courses won’t get you any deduction. Also, the loan should have been taken from a recognised financial institution; those from employers or individuals do not count.

Deduction: The entire interest paid on the education loan is deductible from the income of the taxpayer under Section 80E. However, unlike home loans, there is no tax benefit on the repayment of the principal portion. Also, you can avail of the deduction for a maximum of eight years from the year of starting the repayment.

How to claim it: You need an annual statement of the loan from the lender. It will have details of the interest paid during the year and the outstanding principal.

DISABILITY
The physical and emotional strain of a permanent disability is a given. But what about the severe financial strain of such a condition? The income tax laws have taken this into account and offer deductions to anyone who is disabled or has a disabled dependent.

Who is eligible? Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness. To claim deduction under this section, the degree of impairment should be at least 40%. If the degree of impairment is 80% or more, the condition is defined as severe disability and the taxpayer gets a higher deduction. Dependents can include spouse, children, parents and siblings. However, the disabled person should be wholly or mainly dependent on the taxpayer for maintenance, and should not have claimed separate deduction.

Deduction: Under Section 80DD, deduction of Rs 50,000 a year is allowed if the taxpayer has a disabled dependent. If the assessee is disabled himself, he can claim a similar deduction under Section 80U. If the disability is severe, the quantum of the deduction goes up to Rs 75,000 a year.

How to claim it: One needs a certificate of disability from a civil surgeon or the chief medical officer of a government hospital. Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that the taxpayer may spend on the disabled dependent or on himself.

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