Tax Deductions under Section 80DD on caring for a disabled dependent

Only a family that takes care of a disabled member can truly understand what they’re going through. It is never an easy journey–emotionally as well as in terms of expenses. But there can be some monetary relief that families of disabled dependents can claim at the time offiling income tax returns.

The Income Tax Department allows deductions under section 80DD to individuals and Hindu Undivided Family (HUF) on the expenses made to take care of a disabled or differently-abled dependent. This deduction is available when the dependent is differently-abled and wholly dependant on the individual or HUF claiming the deduction.

There is also a Section 80U that allows the disabled person to claim deductions. What is important to note is that the same deductions cannot be claimed by the individual or HUF under Section 80DD if they have been claimed by the disabled individual under Section 80U.

To claim deduction under Section 80DD, the following conditions have to be met:

  • For an individual taxpayer, the dependent has to be a spouse, child, parent or sibling
  • For an HUF, the dependent has to be a member of the HUF
  • The taxpayer claiming the deduction should have incurred expenses for the medical care, training and rehabilitation of the disabled person
  • The taxpayer should have deposited money in an insurance scheme for the maintenance of the dependent
  • The disability of the dependent should not be less than 40% and defined under Section 2(i) of the Persons of Disabilities Act, 1995
  • The disabilities that are covered under the section include mental retardation, cured leprosy, loco motor disability, hearing impairment and vision impairment

If the above mentioned conditions are met, the taxpayer can claim deductions to the tune of the following amounts:

  • Rs 75,000 for FY2015-16 where disability is less than 80% and more than 40%
  • Rs 1,25,000 for FY2015-16 where disability is more than 80%

These deductions are allowed irrespective of the actual expenses incurred. This means that the full amount can be claimed even if the expenses have not been that high. The government has even increased the deduction amounts by Rs 25,000 for FY2015-16 from what the allowed deductions were in the previous financial year.

To claim deductions under Section 80DD, the taxpayer needs to produce a certificate of disability from specified medical authorities.

This is how you can claim deductions under Section 80DD for caring for a differently-abled family member at the time of e-filing your tax returns.

Save Tax with Section 80C

Before you rush to make any investments under Section 80C, check the outflows that qualify for a deduction in this section.

1) EPF contribution

If you are a salaried employee, calculate the amount that is already exhausted under the EPF. This is a forced contribution from your salary to your provident fund.

2) Education expenses

Now look at the education expenses of your child. To avail of a tax break, the fees are for a maximum of two children and for full-time courses at a recognised institution within India.

3) Home loan repayment

The principal paid towards a home loan, up to Rs 1.50 lakh, can be claimed as a deduction.

4) Life insurance premium

If you are paying any premium towards life insurance policies, then this too will qualify for a deduction under Section 80C.

Only once you have exhausted the above, look at the investments permitted under this section.

EPF: Employees’ Provident Fund

PPF: Public Provident Fund

NSC: National Savings Certificate

ELSS: Equity Linked Savings Scheme –>> This is the Best Tax Saving option

Invest in ELSS – SIP or Lumpsum

How to Invest in ELSS – SIP or Lumpsum

You should plan ahead and spread your investments throughout the year to reduce the risk of catching the market at a wrong time

ELSS are an excellent way to grow your money and save tax at the same time. Like any other equity mutual fund, the best way to invest in ELSS is through the SIP mode. You should plan ahead and spread your investments throughout the year to reduce the risk of entering the market at a wrong time.

If you invest a large sum at one go, you could end up catching a high point of the equity markets. If the markets fall sharply thereafter, a substantial portion of the value of your money can get eroded in the short-term. To save yourself from the stress this may induce, you should always opt for SIP to invest in equity

Tax saving is just one aspect of ELSS investments; wealth creation should also be an equally important objective. The key to equity investment is to remain invested for a sufficiently long time horizon of at least 5-7 years.

Invest for the Long Term in Equity MFs

Invest in Equity MFs Online

While investing in equity or balanced funds, one needs to be mindful of the amount of time one stays in the product and should be sceptical of investing for time horizons of less than 7 years. Also, the choice of funds depends a lot on your risk-bearing capacity. Investing solely with the past returns as your guiding light could be misleading. Also, past returns for 3 years and more should be reviewed for a meaningful analysis. The funds chosen by you have had a decent track record and you may want to continue investing here. For additional investments you could look at diversified large cap funds like ICICI Prudential Focused Bluechip or Birla Sun Life Frontline Equity or DSP Black Rock Focused 25 Fund

To begin with, having a time horizon of 10 years in mind makes a lot of sense if you are planning to invest in equity funds. Equity funds most often end up beating inflation and should be looked at a time horizon of 7 years plus. Debt funds are meant for a medium term -3 to 7 years and liquid funds can be looked to building emergency funds or for funding goals between 0 to 3 years.

SUNDARAM SELECT FOCUS

Invest SUNDARAM SELECT FOCUS Online

This fund has a poor long-term track record, having consistently under performed its category over the years. Its weak return profile is partly attributable to its pure-play large cap focus, unlike many of its peers.

The fund also adopts a very aggressive, concentrated approach to portfolio construction. It identifies 2-3 strong themes to invest and then takes focused exposure to sec tors and stocks within each theme, limiting the portfolio to not more than 35 stocks.

However, execution of the strategy has remained inconsistent as fund managers have changed. A new manager has recently taken over, and will need some time to prove his credentials in executing the fund’s mandate. Meanwhile, investors should stick with more proven offerings in this segment

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Birla Sun Life Short Term Opportunities Fund

Invest Birla Sun Life Short Term Opportunities Fund Online

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Birla Sun Life Short Term Opportunities Fund
(An Open ended Income Scheme)
A scheme that focuses on enhancing the portfolio returns by identifying and selectively investing in mispriced credit opportunities in the market.
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image1.jpg Income with capital growth over short to medium term
image1.jpg Investments in debt and money market instruments with short to medium term maturities across the credit spectrum within the investment grade

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Plan to Save Taxes by Investing in ELSS Funds

Online Investing in ELSS Funds

The month of December is the Fourth quarter of the financial year. This means you will have only 6 months left in the year to invest in tax-saving instruments like ELSS funds. But a lot of people will think that even 6 months is a lot of time.

Generally, tax-savers tend to make their tax-saving investments only in February and March when they have to submit investment proofs. But those investments will be made in haste and might not turn out to be as meaningful as they should be. The purpose of tax-saving investments in ELSS funds shouldn’t be only to save taxes, they should be used to achieve long-term financial goals as well.

This is why you need to plan out your investments well before the due date of 31st March. Ideally, you should begin investing at the start of a new financial year itself, but don’t be concerned if you didn’t do that. You can still make use of the coming 6 months to fulfill your tax-saving obligations and get the best out of your ELSS fund investments.

The first thing you should do is figure out how much of the Rs 1.5 lakh Section 80C limit you have to invest in ELSS funds. To do this, you need to first look at the 80C deductions that you are already putting money in. These include your annual life insurance premium, PPF contribution, home loan principal repayment, children’s school tuition fees, etc. These are the investments and expenses you make anyway and once you have information about them, you will be able to see how much of the Rs 1.5 lakh is left to invest in ELSS funds.

Let’s suppose you have Rs 1 lakh of the 80C limit left to invest in ELSS funds. The mistake you shouldn’t make here is investing that entire amount in one go. Equity-based investments earn higher returns when they are spread out over a period of time. This is why systematic investment plans (SIP) are recommended by below. What you should do is divide the amount you want to invest in ELSS funds for this financial year into 6 parts and invest it every month from October to March. This will allow you to benefit from rupee cost averaging and purchase fund units at different levels of the market. It will also allow you to make sure that you don’t catch a market peak.

Once you have the exact amounts to be invested, you can split it across more than one ELSS fund to benefit from diversification and different investment styles. A portfolio of 3 ELSS funds would be ideal for most tax-savers. Pick ELSS funds on the basis of their historic performance. A fund that has done well over different market cycles would be best placed to navigate the uncertainties of the equity markets in the future. Furthermore, investing in more than one fund cushions your portfolio against the underperformance of any one of your funds.

Of course, before you invest in ELSS funds, you need to understand that they don’t guarantee returns. These tax-saving mutual funds invest in equities and are susceptible to equity-related risks. But they make good investment options because they have a lock-in of only 3 years and the equity exposure can help beat inflation in the long run.

ELSS funds should be a part of most tax-savers’ investment portfolios. When your investments in them are properly planned out, they provide the dual benefit of tax saving and long-term wealth.

Tax Saving mistakes to avoid in 2017

It goes without saying that saving money is as important as earning money. One way to save money is by taking advantage of tax-saving deductions to minimize your tax outgo as much as you can. But that’s easier said than done. Saving taxes is tough and we tend to make it tougher by committing common mistakes.

Here are five common tax-saving mistakes that we can easily avoid.

Rushing to save taxes in the last quarter

Typically, most taxpayers think of their tax-saving investments only in the last quarter of the financial year. This is a folly because rushed investment decisions can lead to investments in the wrong products. Tax-saving investments made at the last moment won’t allow you to benefit from them entirely.

What to do: Start investing in tax-saving avenues at the beginning of a financial year. Plan your investments out in different options like ELSS funds, PPF, fixed deposits, etc to get the long-term wealth creation benefits of a diversified portfolio. The more time and thought you give to your tax-saving investments, the more you will be able to benefit from them.

Not fulfilling the 80C limit

An individual or HUF can save taxes up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Unfortunately, not everyone is able to meet this limit. Often, taxpayers end up paying more taxes than they need to because they’re unable to take advantage of the Section 80 deductions.

What to do: Even though you may not need to invest the entire Rs 1.5 lakh to save taxes, you should make sure you invest as much as you can. Plan your tax-saving investments in such a way that you’re able to take the benefit of the deductions made available.

Ignoring basic expenses that are exempt

A lot of tax payers are not aware that they can avail tax deductions on a number of expenses like children’s tuition fees, life insurance premium, medical insurance, etc.They make these expenses but don’t claim deductions on them and end up paying more taxes than they should.

What to do: Learn about all the expenses that are eligible for tax deductions under Section 80. This is money that you have already spent, it is almost a crime on yourself to pay that amount of taxes as well. Get a CA to help you out if need be, but make sure you claim the deductions you can.

Not investing in ELSS

The equity-related risks that ELSS funds come with often turn investors away from them. Taxpayers are not prepared to take market-related risks and opt to invest in fixed income investments like PPF and FDs. But this is a mistake because only equity can generate inflation-beating returns.

What to do: Allocate a part of your tax-saving portfolio to ELSS funds. You may not want to have higher exposure to ELSS funds, but a certain portion in it is essential to make sure your tax-saving portfolio earns high returns over the long-term.

Not setting investment goals

More often than not, tax saving investments are something that you do and forget about. In many cases, they are done at the last minute when the financial year is drawing to a close and then not given a thought for another year. This doesn’t allow you to get the benefit of wealth creation out of them.

What to do: Plan your tax-saving portfolio and align them with your long-term goals like a child’s education or wedding or your own retirement. Doing this will allow you to get the dual benefit of these investments–saving taxes and meeting long-term objectives.

These are the five common tax-saving mistakes that are repeated too often by taxpayers. Make sure you avoid them this year to give yourself the best possible chance of making optimum use of the income tax deductions available to you.