Don’t miss availing these tax breaks
Premium- No tax will be levied on funds that taxpayers receive from employers, family and friends for treatment of covid
Provident fund, tax-saving mutual funds, insurance policies, home loan and medical insurance. These are the popular avenues of investment that come to mind the moment one thinks of tax breaks. However, Income Tax (I-T) rules allow tax deduction and exemptions on certain other expenditures also (see table). Mint lists out some of these lesser-known expenditures that you can claim in your Income Tax Return (ITR) this year.
Covid-19 treatment
Last year, the government announced that no tax will be levied on funds taxpayers receive from their employers or family and friends for treatment of Covid-19. The same benefit is also extended to those who may have received ex-gratia from employers or well-wishers of a family member who died of Covid-19. This tax exemption came into effect on a retrospective basis from the financial year (FY) 2019.
So, any such eligible amount received in FY2019, FY2020 or FY2021 can be claimed as exemption in the current assessment year.
Taxpayers should, however, take note that expenses from their own personal funds towards Covid-19 treatment does not qualify for any tax breaks. Also, personal loans taken from financial institutions to fund such treatment also don’t qualify for exemption. There are additional conditions on the ex-gratia payment. “If the ex-gratia came from sources other than the employer, the taxpayer can claim exemption only up to ₹10 lakh, while there is no cap on the amount received from the employer," said Maneet Pal Singh, Partner, I.P. Pasricha & Co. Also, the funds should have been received within a year of the person’s death.
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Collect bank statements and medical bills as proof of expenditure before you file the ITR. “Taxpayers who lost a family member to covid will have to submit a copy of the death certificate to claim exemption," said Pasricha.
HRA
House Rent Allowance, or HRA, is a tax benefit available only to salaried employees. Others, including salaried employees who don’t have HRA as part of their compensation package, can claim tax deduction on rent under section 80GG.
The amount you can claim will be the least among the following: actual rent paid in a year minus 10% of the adjusted annual income; 25% of the adjusted income, or ₹60,000 of total annual rent paid. Adjusted income refers to the taxpayer’s gross income without including long-term capital gains (LTCG), short-term capital gains (STCG), incomes under section 115A or 115D for non-residents and tax deductions from section 80C to 80U.
Eligibility criteria to claim this benefit is stringent compared to HRA. First, you, your spouse, minor child or HUF (Hindu Divided Family) that you are a part of should not own a residential property in the same city where you live on rent on account of your work.
Second, if you or the aforementioned family members own a property in any other city, it should not be declared as self-occupied property in ITR. Since parents have been kept out of this criterion, if the taxpayer lives with her parents in a property solely owned by the latter, she can claim deduction on rent paid to the parents. “It is important that the taxpayer keeps records of rent receipts and rental agreement," said Abhishek Soni, CEO and co-founder - Tax2win.
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Third, you should not have received HRA at any time during the year. “Say, a taxpayer held a job for three months in a year where he was given HRA benefit, while for the remaining nine months he was in another job which did not offer HRA but had paid rent. In this case, he cannot claim deduction under section 80GG and can only take HRA tax break," said Prakash Hegde, a Bengaluru-based chartered accountant.
The taxpayer should fill form 10BA available on the income tax filing website to claim this benefit.
Medical expenses
Apart from deduction on premium paid toward a health insurance policy, the income tax rules allow tax breaks for uninsured senior citizen parents, on specified diseases and preventive health check-ups.
Taxpayers who pay for the medical treatment, regular-check ups or medicines of their senior citizen parents —those not covered under a medical insurance policy—can claim up to ₹50,000 tax deduction under Section 80D. The only condition is that the mode of payment should not be cash. However, if a taxpayer has made payments in cash due to unavoidable reasons, he can still make the claim but should have appropriate bills and documents to support the transaction and should be able to justify the mode of payment in case of a query from the IT department.
Tax experts say very few taxpayers are aware that preventive health check-ups undertaken for self, spouse, children or parents are also eligible for tax deduction of up to ₹5,000 under section 80D. However, this falls under the overall 80D ceiling of ₹25,000 for individuals and ₹50,000 for senior citizens (see table). Preventive health check-ups refer to medical tests that detect possible diseases.
Under section 80DDB, expenses towards medical treatment of specified diseases, including cancer, AIDS, chronic renal failure, neurological diseases with disability above 40% and hematological (blood-related) diseases, can be claimed as deduction. Senior citizens can claim up to ₹1 lakh, whereas others age are eligible for upto ₹40,000. If the claimant has received insurance payout for such treatment, the insurance amount will not be considered for deduction.