Tax Hacks 105: Lesser-Known Tax Deductions

Two Crore Indians file returns but pay zero income tax!

A junkyard owner tried to write off the cost of cat food. He claimed the feral cats it attracted helped him keep snakes and rats off the property. Did you know the government once let a bodybuilder successfully write off a huge sum in tanning oil?

There’s a whole world of obscure, industry-specific tax deductions you could be missing out on as a small business owner without even knowing it. So how do you find them?

Make sure you’ve deducted the less obscure ones first.

Did you know you can claim tax deduction on stamp duty? Or if you use a specific part of your home exclusively for business, you may be able to claim the home office deduction?

Before you start claiming cat food on your business tax return, make sure you’ve deducted the other lesser-known expenses first. Take a look at a list of some of the lesser known investments and expenditures that are eligible for tax breaks.

Pre-Nursery fees deduction… School tuition fees is not the only deduction you can claim. Deduction can be claimed on children’s play school, pre-nursery and nursery fees, too. This was introduced in the year 2015 under Section 80C. But a lot of parents are unaware of this fact.

Maximum permissible deduction is INR 1.5 Lakh.

Look out for… this benefit is restricted to a maximum of two children.

Your PPF or Public Provident Fund can be reinvested… A large number of salaried individuals are unaware of the fact that the PPF scheme allows partial withdrawals from the seventh financial year. This is included under Section 80C.

Extent of withdrawal permitted- Up to 50% of balance at the end of the fourth fiscal, preceding year of withdrawal or at the end of the fiscal preceding the year of withdrawal, whichever is lower.

Look out for… Only one partial withdrawal is allowed per financial year.

Squaring up the tax-planning exercises and estimating the amount needed for reinvesting will be helpful.

Tax break on Stamp Duty… Stamp duty and registration fees paid while buying a house can also be claimed. This deduction is beneficial to individuals who have taken a home loan towards the end of the financial year. The principal component is especially lower in the initial years. This too is included in Section 80C.

Maximum permissible deduction is INR 1.5 Lakh.

Look out for… The deduction needs to be claimed in the financial year of purchase. It cannot be claimed later.

Interest on loans taken from parents… Deduction allowed is not restricted to interest paid on loans from banks and housing finance companies. One can also claim deductions on interest paid on loans taken from parents. This is useful if parents fall in the lower tax brackets. This is included under Section 24B.

Maximum permissible deduction is INR 2.0 Lakh.

Look out for… When you pay the interest on loans from parents, do not forget to collect a certificate attesting the interest payment.

Rent to parents cuts tax… This is another lesser-known tax break. Rent paid for staying in a property owned by your parents is tax-deductible. You can avail exemption under House Rent Allowance or HRA. But your parents will be eligible for standard deduction and deduction on municipal taxes paid. Thereby, resulting in savings for the entire family. This deduction is included under Section 10(13A).

Maximum permissible deduction- Actual HRA received or excess of rent paid over 10% of salary or 50% of the basic salary (40% if you live in a nonmetro), whichever is lower.

Look out for… It is important to make the landlord-tenant equation official. Hiring a lawyer to draw up the rental agreement containing the details of rent payable can prove to be useful. This might avoid any rejection of the exemption on the rent receipts submitted.

Group cover can also be claimed… Any amount paid for group health insurance premium is eligible for tax break. Premiums can be availed through your employer for your spouse, children and parents. This premium is entitled to deduction just like independent, retail health covers. This deduction is included under Section 80D.

Maximum permissible deduction is INR 75,000. (Total cap on tax benefits, assuming the tax-payer’s age is less than 60 years and parents are senior citizens)

Look out for… If your employer has funded the entire premium, you cannot claim the tax benefits.

Funding your parents’ medical expenses… It is common for elderly parents, above the age of 60, to incur medical expenses. This expenditure is usually on a recurring basis. You can claim deduction on these expenses. The tax breaks will be akin to health insurance premiums. Deduction for treatment of parents is included under Section 80D.

Maximum permissible deduction is INR 50,000.

Look out for… This expense will not be allowed as a tax break if parents are already covered by a health insurance policy.

All the above deductions can be claimed under Old Tax Regime. And Once you know these lesser-known tax deductions, you can go digging for obscure ones.

These deductions will help you save up your hard earned income. We will be talking in depth about business deductions that can be availed in the blogs to come.