How To Use Infra Bonds, HRA, LTA, Home

Loan To Save Tax

It's that time of the year again! When everybody's in the holiday spirit, you might be taking a
family vacation to reward yourself after a long year's work, and let's not forget this is also tax-
saving time.

If you are a salaried individual, your company is probably going to ask for your investment
proofs for this year right about now. Most people stop at giving proof of their Section 80C
investments. But there are a few more things that you can consider. Let's see what these are.

1. Infrastructure Bonds: Section 80CCF

You must have seen the hoardings lately. IDFC, IFCI and other companies are advertising
their infrastructure bonds, which give you tax relief under Section 80CCF and enable you to
in your own way, contribute towards building the infrastructure of the country.
Investments of up to Rs. 20,000 in these bonds qualifies for tax deduction.
These bonds are launched by companies including IDFC, L&T, IFCI, IIFCL and other
NBFCs classified as infrastructure companies.

If you are in the 30.90% tax bracket, then investing in an infrastructure bond will save you
up to Rs. 6,180 this year. With this tax amount saved, the yield on these bonds goes up
significantly. This is a definite consideration from a tax saving point of view. For more
details on which infrastructure bond to invest in, do have a look at our article on REC Infra
Bond - 80 CCF . You have until March 31st, 2011, to invest in any infrastructure bond, but
do note that the interest rate offered right now is quite attractive, and will most likely not get
any higher than it is right now, so don't wait.
2. Save tax through your home loan (Section 80C, Section 24)

If you have a home loan right now, you're probably feeling the pinch of the high interest
rates through your EMI. But, there's a beautiful silver lining to your home loan, and that's
how its helping you save on tax.

The laws of our country are such that if you have taken a home loan on a house that you are
living in i.e. a self occupied property, you are eligible for a Rs. 1 lakh deduction under
Section 80C on the principal repayment of your home loan, and a Rs. 1,50,000 deduction
under Section 24 of the interest repaid.

But, apart from this, if you have taken a home loan on a house that you have given out on
rent i.e. a let out property, then your tax benefits are much higher! You get the same
principal deduction as a self occupied property, but here your interest repaid is fully and
completely deductible! There is no limit on interest repaid on a let out property.

Make the most of either of these 2 situations and you can save a hefty amount of tax, which
you can promptly invest towards your retirement. For more information on this, do check out
our tutorial on Saving Tax through House Property.
3. Know how to use your short term capital gains loss

If you, like most investors, also trade in shares, and have made some losses this year, you
can set off these losses against any gains that you have made.

The divisions are as follows:
Short Term Capital Loss can be set off against Short Term Capital Gains, or Long Term
Capital Gains. Long Term Capital Loss can be set off only against Long Term Capital Gains.
So For example, if you have made a short term capital loss on direct equity, and made a gain
on Gold ETFs or even physical gold, or perhaps a gain made on property, you can set off the
losses against the gains. Please do speak with your CA for more details on this as the rules
are very specific, and save more tax this year.
4. How to save tax through salary allowances i.e. HRA, LTA, Medical Expenses

If you look at your salary slip, you will see certain amounts each month stats as HRA (House
Rent Allowance) and LTA (Leave Travel Allowance).

These sub divisions in your salary are there to help you save tax.
If you are living on rent, then you can claim HRA by showing your rent payment receipts.
Remember, the HRA rules allow you to claim only a certain amount of HRA which is the
least of the following:
a. Rent paid less 10% of your basic
b. 50% of your basic (if you live in a metro) or 40% if you live in a city other than a metro
c. Actual HRA received
This is an excellent way to save tax. So if you are living on rent, you must use it.

Similarly, your LTA allows you to save tax as well. If you have taken a holiday or plan to
take a holiday before March ends, you can claim your travel expenses (only travel, not stay
and food) within a limit as set by your employer and within certain rules as set by the
Government of India. For details on how to save tax using LTA, please see our tutorial on
How To Save Tax in your Salary.

Everybody has medical expenses and what's great is that you can use these regular medical
expenses to save tax. This depends on the salary structure decided by your company. Some
companies offer a reimbursement of medical expenses up to Rs. 15,000 per year. Others
include it as a part of your salary structure which you receive every month, and you can
present bills up to Rs. 15,000, which will be tax deductible under Section 17(2).
Next week, we will talk more about how to save tax, and see how forming an HUF can help you
to save tax as well. For now, do be sure to make use of the above mentioned points and submit
your investment proofs on time.
This note is authored by PersonalFN, a service brand of Quantum Information Services Pvt. Ltd.,
which has over 10 years of expertise in researching Mutual Funds and also provides unbiased
views on Mutual funds, Insurance, Gold and Fixed Income instruments in India. PersonalFN
provides premium mutual fund research and financial planning solutions to individuals. and also
powers research services for Quantum Equity Fund of Funds, a product of Quantum Mutual
Fund.