Legally Saving Tax

Turn stock losses into tax gains:

You gain from short term losses you made on stocks? Yes, says the Income Tax Act. If you have made long term capital gains from sale of property gold or debt funds you can set them off against short term capital losses made on stocks and bring down your tax liability. Short term capital losses can be set off against both short term capital gains as well as taxable long term capital gains. This can be especially useful for someone who has made profits on gold exchange, traded funds and physical gold this year. Suppose you have sold a property and made a long term capital gain of Rs 30 lakh after indexation. At 20 % the tax payable on this long capital gain is Rs 6 lakh. However, if you have also sold some junk stocks during the year and made a short term loss of Rs 3 lakh, you can set this off against the gains from the property. Then the gain from the property will get reduced to only Rs 27 lakh and the tax payable will be Rs 5.4 lakh, however the law makes a distinction here. One cannot set off short term gains from stocks against long term capital losses from the other assets,. Long term capital losses can only be set off against taxable Long term capital gains.

How much tax can you save: setting off a short term loss of Rs 3 lakh against long term gains and can help you save Rs 60,000.

Proof required: Records of your equity trading account statements with details of the transactions that resulted in losses.

Pay lower tax if dependent is ill:

The treatment of a chronic illness can drain the finances of the tax payers. That’s why the income tax Act allows a taxpayer to claim a deduction of Rs 40,000 if there is a dependent who suffers from an ailment specified under Section 80 DDB. The deduction is higher at Rs 60,000 if the patent is a senior citizen. The diseases include neurological diseases such as dementia, dystonia, musculorum, deformans, motor neuron diseases, ataxia, chorea, hemiballismus aphasia and Parkinsne’s diseases, maligant cancers, full blown AIDS, chronic kidney failure and haematological disorders (haemophilia and thalassaemia). Dependents can include spouses, children, parents and siblings.

However, there are a few conditions. The patient should be wholly or mainly dependent on taxpayers and should not have separately claimed deduction for the disability. If the amount spent is reimbursed by an employer or an insurance company there is no deduction. If a tax payer gets a partial reimbursement of the expenses the balance can be claimed as deduction.

How much tax can you save: If a dependent is patient a taxpayer’s liability shrinks by Rs 12,360 in the highest income bracket. If the patient is a senior citizen, the tax is lowered by Rs 18,540.

Proof required: A certificate of the illness from a specialist in a government hospital.

Put education loan work more than before

The rising cost of higher education is forcing people to borrow money to pay the fees of their children’s professional courses. The taxman is sympathetic and defers a deduction that can lower the cost of a loan. The interest paid on an education loan is fully deductible from taxable income under Section 80E. Till a few years ago this deduction was available only to the borrower. Now even a parent or a spouse can avail of it. What’s more this now includes loans taken for vocational courses. If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for up to eight successive years, starting from the year in which the interest is first paid.

However loans taken for siblings and other relatives do not qualify. Also, the lender must be a recognized financial institution; loans from employers or individuals do not fit the bill.

How much tax can you save: if you take a Rs 10 lakh education loan education loans at 10% interest for 8 years, you can save Rs 1.41 lakh in tax in the highest tax bracket. This will bring down the effective cost of the loan to 7% per annum.

Proof required: Loan statement from lender.

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