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Income Tax Returns: There is a lot of talk about maximizing tax refunds in India. There is no harm in aiming to save money, which you can achieve by ensuring that you get all the tax benefits you are entitled to. Your proficiency in assessing various aspects of tax calculations can help you get a bigger refund.
Availing necessary deductions and exemptions
Taxpayers should use all available deductions and exemptions to reduce their tax liability. It is essential to check the Income Tax Act to understand the deductions and exemptions available to you when filing your Income Tax Return (ITR) in India. The deductions and exemptions vary depending on your category, whether you are a salaried individual, a pensioner or a self-employed individual.
Deduction under section 80C
There are several deductions covered under Section 80C of the Income Tax Act in India. This provision enables you to claim deductions for various investments and expenses, thereby reducing your taxable income and potentially lowering your tax liability. Here is an overview of the deductions available to you:
Public Provident Fund: Contributions made to the Public Provident Fund (PPF) are exempted under Section 80C. PPF is a popular long-term investment option as it offers tax benefits and competitive interest rates.
Equity-Linked Savings Scheme: Section 80C allows tax deductions on investments made in equity-linked savings schemes (ELSS), a type of equity mutual fund. Compared to traditional options like PPF, ELSS has the potential to offer higher returns but is more vulnerable to market risk.
National Pension System: Deductions are allowed on contributions made to Tier-I National Pension Scheme (NPS) accounts under Section 80C. With tax exemptions available on contributions, investment growth and maturity amount, NPS is a long-term retirement savings scheme.
Life Insurance Premium: Subject to certain limits, Section 80C allows you to deduct premiums paid for life insurance policies (for you, your spouse, or your dependent children).
tuition fees: Section 80C allows deduction of tuition fees for up to two children (including legally adopted children) enrolled full-time in any school, college, university or other educational institution in India. There is a limit on the amount that can be withheld for further education outside India.
The combined maximum limit of deduction under Section 80C for the financial year 2023-2024 (AY 2024-2025) is ₹1.5 lakh. All the above investments and other Section 80C deductions are subject to this restriction.
Deduction under section 80D
You can deduct the premiums for your family, yourself and in some cases, your dependent parents from your income tax under Section 80D of the Indian Income Tax Act. The following people are eligible to claim the deduction under this provision.
Person: The health insurance premium paid by an individual for himself, his spouse and his dependent children can be waived off.
Senior Citizens (Above 60 Years of Age): The deduction limit is higher for senior citizens. In addition, they are eligible to deduct the cost of their parents' health insurance premium (up to age 80).
Tax deductions are made on premiums paid for health insurance policies offered by recognized insurance companies in India. This usually includes individual health insurance policies, family floater plans, and critical illness plans. If your health insurance policy covers hospitalization for Ayurvedic treatment, the premiums are also deductible under Section 80D.
The maximum deduction limit under Section 80D for medical insurance premium varies depending on your age and the person you are insuring:
Individuals (below 60 years of age) : ₹25,000 (including deduction for annual physical check-up).
Individuals (above 60 years of age): ₹50,000 (including deduction for annual health check-up).
Parents of senior citizens (up to 80 years of age): Senior citizens are eligible to receive an additional ₹25,000 (or ₹50,000 if they are above 80 years of age) if they pay for their parents' health insurance.
The deduction limit for preventive health check-ups is ₹5,000 per financial year, which is included in the overall limits mentioned above. Although you can claim deductions for multiple health insurance policies, the total deduction cannot exceed the specified limit.
The documents required to claim deduction under Section 80D include:
Receipts or certificates of medical insurance premiums paid.
If you are claiming deduction for medical insurance of your parents (for senior citizens), proof of relationship with them.
Consider choosing a family floater health insurance plan to cover all family members under a single premium, thereby potentially maximising your deduction. If you are a senior citizen and your parents are dependent on you, make sure you pay their health insurance premium to claim additional deduction. Remember, the deduction applies to the premiums paid, not the total sum insured.
Deduction under section 24
You can reduce your taxable income and, consequently, minimise your tax payout by claiming deduction on home loan interest under Section 24 of the Indian Income Tax Act.
The following types of home loans are deductible under this section:
A loan taken to purchase, develop, repair or rebuild a home.
Loans taken from authorized financial institutions, banks or mortgage lenders.
The type of property and the original date of loan determine the maximum deduction limit for interest paid on home loan under Section 24.
Self-occupied property: Every financial year, the self-occupied property is worth ₹2 lakh (till FY 2024-25).
Property Rented: There is no limit on the amount of interest that can be deducted from the mortgage.
Interest paid on a home loan during pre-construction can be waived off, but only if it is paid in five equal instalments starting from the year when the property is made ready for occupation. If the home loan is taken jointly, each co-owner may be eligible for a proportionate deduction based on their share of the loan repayment. Only the interest portion of the EMI paid on a home loan is eligible for deduction. Under certain circumstances, the principal repayment amount can be claimed under Section 80C but is not deductible under Section 24 of the Income Tax Act.
Exemptions available under various sections
House Rent Allowance (HRA) and Leave Travel Allowance (LTA) exemptions can help reduce your tax burden in India:
House Rent Allowance: This allowance, provided by certain employers to cover the cost of rent, is exempt from tax under section 10(13A) of the Income Tax Act. The exemption is the lowest of the following three amounts:
Actual HRA received from your employer.
50% of your basic salary (if you live in a metro city) or 40% (for non-metro cities).
10% of your basic salary will be deducted from the actual rent paid.
To qualify for HRA exemption, you need to fulfil certain conditions:
You will have to pay rent for the accommodation separately.
You must have a rent receipt in your name.
In some cases, a rental agreement may be required.
Leave Travel Allowance: Some businesses offer LTA to help cover travel expenses incurred during a holiday for you and your family. Section 10(5) of the Income Tax Act provides limited exemptions for LTA. The exemption limit is the lowest of the following:
Actual travel expenses (with bills for evidence).
As per Income Tax guidelines, the airfare for the journey should be in economy class.
The amount sanctioned for LTA by your employer.
The prerequisites for availing this discount are:
Travel must be undertaken within India only.
This exemption applies only to holiday travel and not business travel.
You can claim the exemption for two journeys within four years. The current block year is from 2022 to 2025.
Make sure Form 26AS/AIS/TIS is matched
Your tax refund, which is usually given for excess tax paid through tax deducted at source (TDS) and tax collected at source (TCS), may be affected by discrepancies between Form 26AS and AIS. If the TDS/TCS details on your Form 26AS (tax credit statement) do not match the information given in the Annual Information Statement (AIS), your refund amount may be reduced.
The best strategy is to identify the source of the error.
AIS Error: If you believe the AIS contains incorrect information, please report feedback directly on the AIS portal for correction.
Form 26AS Error: If the discrepancy is due to Form 26AS, inform your deductor (employer, bank, etc.) and ask them to file a revised TDS return.
Always match TDS/TCS amounts on Form 26AS and AIS before filing your tax return. Keep detailed records like bank statements, salary stubs and investment documents to support your claims in case of discrepancies.
File your ITR on time
It is very important that you file your income tax return (ITR) on time. Here are some of the benefits of filing your ITR by the deadline of July 31, 2024 for the financial year 2024–2025:
Quick Process: If you file early, your ITR will be processed faster, which may lead to quicker receipt of tax refund (if due).
Avoid interest and penalties: If you file ITR after the deadline then the Income Tax Department can charge interest and penalty on you.
Carry Forward of Losses: If you file your returns on time, you can reduce your future tax bill by carrying forward your business losses and crediting them against future revenues.
Loan Process: While applying for a loan, a timely filed ITR can be helpful, as it lets banks and other financial institutions know that you have good financial habits and pay taxes.
Visa Application: When applying for a visa, some countries ask for a copy of your ITR. You can speed up the process by filing your ITR on time.
To guarantee a smooth ITR filing process, consider the following tips:
Collect all the required documents: Organise your salary slips, Form 16 (if applicable), investment proofs, bank statements and other relevant paperwork for quick reference.
Choose the correct ITR Form: Choose the appropriate ITR form based on your income and filing category.
Use electronic filing to: Filing ITR electronically saves time, is more convenient, and makes the refund process easier.
Review before submission: Before submitting your ITR, inspect it carefully for errors or discrepancies.
By submitting your ITR on time and following these guidelines, you can ensure a smooth and quick tax filing process.
Bank account information verification
Verifying your bank account and providing accurate information is crucial to receiving a seamless and timely income tax return. The verification process confirms that the bank account linked to your Permanent Account Number (PAN) is valid to receive reimbursement. You can verify your bank account in advance on the Income Tax Department's e-filing portal by providing your PAN, name and mobile number.
While filing your tax returns, double-check your bank account details (account number and IFSC code). Any mismatch between the information given in the return and your actual bank account may result in delay or rejection of refund.
If you are an employee, consider revising your tax deduction at source by submitting Form 16 to your employer. For self-employed individuals, make advance tax payments throughout the year to prevent a huge tax bill at the time of filing. Remember to retain receipts, bills and investment documents to substantiate your deduction claims in case of discrepancies with the tax department. Opting for e-verification is the fastest way to authenticate your returns and speed up the processing of your refund.
Consult a tax advisor if your tax situation is complex. Above all, make sure you are claiming all your eligible benefits by staying informed about tax laws. You can make better decisions, file your taxes more accurately and possibly even get a bigger tax refund in India by putting these strategies into practice.
The best strategy is to identify the source of the error.
AIS Error: If you find AIS has incorrect information, please report feedback directly to the AIS portal for correction.
Form 26AS error: If the discrepancy is due to Form 26AS, inform your deductor (employer, bank, etc.) and ask them to file a revised TDS return.
Always match TDS/TCS amounts on Form 26AS and AIS before filing your tax return. Keep detailed records like bank statements, salary stubs and investment documents to support your claims in case of discrepancies.