Expenditures qualifying as deduction in ITR

Forgot to make tax-saving investments before 31st March? Here are some expenditures which also qualify as deductions in IT returns

You must have seen people struggling to make investments in Insurance policies or PPF before the 31st March of every year. The real reason for making these last moment investments is not to generate the return but to save their taxes for that year.

Sec 80C of the income tax allows deduction benefit upto Rs 1.5 Lakhs if the investment is made in certain specified instruments and taxpayers thus make such investments in order to exhaust and utilize the limit to the maximum and to reduce their tax burden to the minimum.

However, most of the taxpayers are unaware that there are certain specified expenditures also apart from specified investment, which qualify as deductions from gross total income under section 80C. If you have incurred these expenditures in excess of Rs, 1.5 lakh, then you may not even need to make any investment only to avail the tax benefit.

Here are some Expenditures which also qualify as deductions in the computation of Income Tax:

1. Tuition fees of children

• One cannot avoid expenditure on the school fees of his kids. Any tuition fees paid to colleges or schools including Creches and play schools is covered in the Sec 80C limit and thus helps in saving taxes.

• However, it must be noted that the educational institute to which fees is paid should be situated in India only.

• Also, no deduction shall be allowed on payment of donation or development fees or any other fees of similar nature to the institution as this is not a part of “tuition fees”.

• Also, this benefit is restricted to two children only for each parent and will be available to the parent who has actually made the payment. There, deduction can be claimed for fees of maximum 4 children i.e. 2 by each parent.

2. Home Loan Repayment

• Income Tax Act also provides relief to the home buyers who have to pay hefty installments on home loans. The principal component of the loan repaid in the year can be claimed as a deduction from gross total income under section 80C.
• However, this deduction is allowed only in case of acquisition or construction of the house. So any loan taken for any other purpose like repairing is not eligible for the deduction.

• Also, deduction can be claimed from the year in which construction has been completed and completion certificate has been awarded. No deduction for principal repayment under sec 80C can be taken while the property is still under construction.

• It must also be noted that if that house property is sold off within 5 years from the end of the financial year in which possession of such property was obtained, the deduction benefit claimed earlier will be reversed and will be added back to the taxable income in the year of sale.

3. Stamp Duty and Registration fees for acquiring House Property

• While buying a house, a no. of expenditures are required to be incurred other than the cost of the house like Stamp Duty, Registration fee and other similar expenses. Income tax also provides deduction of such expenses under Sec 80C.

• It is to be noted that while taking deduction for these expenditures, it is not relevant whether the assessee has taken loan or not to acquire the property.

Read more at: Tax benefit on Stamp Duty & Registration charges of a Property

4. Payment to Development Authority or Housing board for the purchase of house

In case, you have made any payment to development authorities like Delhi Development Authority (DDA) in order to purchase a house which has been allotted in a scheme made in this regard, the amount paid towards the repayment of the principal component also qualifies as deduction under section 80C.

5. Contribution to Provident Fund & Pension Schemes

• Every month, a part of your salary is deducted and deposited as your contribution in the Provident fund scheme. Total of this contribution also qualifies as an eligible expenditure under 80C.

• Employee can also increase his contribution if he is willing to take a lesser-take home salary. This additional contribution is called Voluntary Provident Fund and it is also an allowed deduction under Sec 80C.

• Any contribution made by an assessee to a notified pension scheme is also allowed as deduction u/s 80CCD. It is to be noted that the deduction claimed under Section 80C & 80CCD cannot exceed Rs 1.5 Lakhs in totality.

• However, Sec 80CCD(1B) of the act provides an additional deduction benefit of Rs 50000 for contribution to approved pension scheme over and above the limit of 1.5 Lakhs.