Tax-saving tips: 7 lesser-known investments, expenses eligible for tax breaks

Apart from the tax deductions and exemptions available under the popular sections of the Income-tax Act, 1961 like 80C, 80D, 80G, 80 DD etc, there are other tax breaks one can use to save tax. Do keep in mind that these tax breaks are available only to those who opt for the old tax regime. Here are some of the lesser-known investments and expenditures that are eligible for tax breaks.

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1. Deduction for pre-nursery

One can claim tax break for expenses related to playgroup, pre-nursery, and nursery fees paid for their children. Although introduced in 2015, this tax benefit is not as widely recognized as the deduction available for school tuition fees.

• Section: 80C
• Maximum permissible deduction: Rs 1.5 lakh
• Watch out: Benefits restricted to two children.

2. Re-invest PPF money to save tax
Tap your Public Provident Fund (PPF) account for this year's tax-saving investments. You can make partial withdrawal from your PPF account from the seventh financial year.

• Section: 80C
• Extent of withdrawal permitted: Loan facility is available from the fourth year and withdrawal facility is available from 7th year under the PPF scheme.
• Watch out: Given the restriction of only one partial withdrawal per financial year, initiating the tax-planning process early and accurately estimating the required amount will be beneficial for you.

3. Stamp duty can save tax
Optimize your tax benefits by claiming a tax deduction on stamp duty and registration fees while buying a house. This is especially beneficial for individuals availing a home loan towards the end of the financial year, considering that the principal component is relatively lower in the initial years.

• Section: 80C
• Maximum permissible deduction: Rs 1.5 lakh
• Watch out: Make sure to secure the deduction in the financial year of the property purchase since it cannot be availed at a later time.

Also read: How to save income tax in new tax regime? Two deductions that salaried can claim

4. Pay interest to parents
Consider paying interest on a loan from your parents to fund the house purchase. It's essential to note that the deduction allowed on home loan interest is not exclusive to loans from banks or housing finance companies. This strategy can be particularly advantageous if your parents fall in the lower tax brackets.

• Section: 24B
• Maximum permissible deduction: Rs 2 lakh
• Watch out: Ensure that you pay interest on loans from parents and don't forget to collect a certificate attesting the interest payment.

5. Rent to parents cuts tax
If you reside in a house owned by your parents, consider paying them rent and documenting the transactions. By doing so, you become eligible for the House Rent Allowance (HRA) exemption. Added to this, your parents can benefit from standard deduction and deductions on municipal taxes paid, leading to overall savings for the entire family.

• 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.
• Watch out: Formalize the landlord-tenant arrangement by getting a lawyer to create a comprehensive rent agreement, outlining the specific details of rent payments. To safeguard against potential rejection of the exemption in the future, diligently submit rent receipts as evidence of the transaction. This ensures clarity and legality in the landlord-tenant relationship.

6. Tax break for group health insurance cover
Take advantage of the tax break available on group health insurance premiums that you pay. If you're covering yourself, your spouse, children, and parents under a group health insurance plan purchased through your employer, remember that you are entitled to deductions similar to those applicable to independent retail health covers.

• Section: 80D
• Maximum permissible deduction: Rs 75,000 (Total cap on tax benefits, assuming the tax-payer's age is less than 60 years and parents are senior citizens)
• Watch out: If your employer has funded the entire premium, you cannot stake a claim on the tax benefits.

7. Parents' treatment eligible
You can fund your parents' medical expenses. It is common for elderly parents (aged 60 and above) to incur recurring expenditure on medicines; if you finance these expenses, you will be allowed tax breaks akin to health insurance premiums.

• Section: 80D
• Maximum permissible deduction: Rs 50,000
• Watch out: This expense will not be allowed as a tax break if they are covered by a health insurance policy.