TomorrowMakers

Your family stands by you through thick and thin. But did you know your dear ones can also help you with your tax planning?

Did you know that your family can help you save tax?

Your family forms an integral part of your life. They share your joys and sorrows and stand by you during difficult times. But did you know that they can help you financially as well? Here are some ways your family can – legally – help you save on tax:

1. Buy health insurance for the whole family

Today, health insurance is a necessity for each and every member of your family. What’s more, it also helps you save tax if you buy a family health insurance plan. Under Section 80D you can only save Rs 25,000 on a health plan that includes you, your spouse and your children. On the other hand, if your insurance plan includes your parents as well, you can save up to Rs 60,000.

People covered under health plan

Tax exemption limit

You + your family (spouse and children)

Rs 25,000

You + your family + your parents

Rs 25,000 + Rs 25,000 = Rs 50,000

You + your family + your parents (senior citizen)

Rs 25,000 + Rs 30,000 = Rs 55,000

You (senior citizen) + your family + your parents (senior citizens)

Rs 30,000 + Rs 30,000 = Rs 60,000

Source: https://www.bankbazaar.com/tax/section-80d.html

For instance, if you are 60 years old and your parents are in their 80s: 

Premium you pay for yourself and your family = Rs 32,000

Premium you pay for your parents’ policy = Rs 35,000

You can avail of the following tax deductions:

  • Rs 30,000 on the premium you pay for yourself and your family (spouse and children)
  • Rs 35,000 on the premium you pay for your parents’ policy

Hence, you can claim a total tax deduction of Rs 60,000 on your overall premium of Rs 67,000.

However, do note that premiums paid for your parents-in-law are not eligible for tax deductions.

2. Give or receive cash gifts

Any cash received as a gift from your spouse, your parents, or parents-in-law is tax-free (below Rs 50,000 in a tax year). 

However, when you invest the cash gifted by your spouse, it gets added to your taxable income due to the provision for clubbing income under Section 64 of the Income Tax Act. To save tax, you may use this cash to invest in tax-free investment instruments such as Equity-Linked Savings Scheme (ELSS), Public Provident Fund (PPF), tax-free bonds, Unit-Linked Insurance Plans (ULIPs) etc. These investments will allow you to earn tax-free returns.

Gifts received from the following are exempted from tax, under income tax laws:

  • Your spouse
  • Your siblings
  • Your spouse’s siblings
  • Any of your lineal ascendants or descendants
  • Any of your spouse’s lineal ascendants or descendants 
  • Under a will or inherited on your marriage
  • In contemplation of the death of the person who is giving the gift


3. Pay rent to your parents 

If you are a salaried employee who is living with your parents, you can pay an amount as a rent to your parents and claim House Rent Allowance (HRA) from your employer. This rent reduces your taxable income, thereby reducing your tax liability.

However, your parents will be taxed on this amount:

Do note that in order to claim HRA, the house should be legally owned by your parents.

4. Seek a joint home loan

You can get a tax exemption if you purchase a home in your wife’s name. One of the major benefits is the extra deduction of interest up to Rs 1.5 lakh every financial year, if the house is self-occupied. 

Additionally, if you and your spouse have taken a joint home loan, you are both eligible for income tax benefit. According to existing IT laws, both loan applicants can claim tax deductions on the principal repayment under Section 80C and on the interest amount under Section 24.

Another option is to make investments via your spouse. Consider investing in a tax-free instrument such as PPF or ELSS through your spouse, who may be non-working or in a lower tax bracket. 

5. Invest for your child 

If you invest in a minor child’s name in an ELSS, PPF, or any other investment specified under Section 80C, your taxable income will be reduced by that amount. You can claim a deduction of up to Rs 1.5 lakh on your combined income. 

If your children are 18 or older, they will be treated as separate individuals for all tax purposes, meaning their income will no longer be clubbed with your taxable income. Make sure you file separate returns for them so you can claim deductions under Section 80C, 80D, etc.

6. Open a Sukanya Samriddhi account 

If you are the parent or legal guardian of a girl child you could open a Sukanya Samriddhi account. Sukanya Samriddhi Yojana is a government initiative that helps parents save money for their daughter’s higher education and marriage. The scheme offers not just financial security for your daughter but also offers EEE tax exemption under Section 80C. You can contribute between Rs 250 and Rs 1.5 lakh per annum towards the scheme, and the maximum tax exemption you can avail of is Rs. 1.5 lakh.

Additionally, if you have taken a loan for your child you could use it to save tax. According to Section 80E of the IT Act, interest paid on education loans can be claimed as deduction.

Section 80C of the IT Act also provides tax deduction for children’s tuition or education fees. As a parent, you can avail tax deduction up to Rs 1.5 lakh under Section 80C along with other investments qualified for this deduction.

Conclusion

As you just saw, your family can be of great help while planning your taxes. The methods mentioned above can help you bring down your overall tax liability. However, make sure that every financial transaction you make to save on taxes is above board so you don’t find yourself on the wrong side of the law!

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.

Your family forms an integral part of your life. They share your joys and sorrows and stand by you during difficult times. But did you know that they can help you financially as well? Here are some ways your family can – legally – help you save on tax:

1. Buy health insurance for the whole family

Today, health insurance is a necessity for each and every member of your family. What’s more, it also helps you save tax if you buy a family health insurance plan. Under Section 80D you can only save Rs 25,000 on a health plan that includes you, your spouse and your children. On the other hand, if your insurance plan includes your parents as well, you can save up to Rs 60,000.

People covered under health plan

Tax exemption limit

You + your family (spouse and children)

Rs 25,000

You + your family + your parents

Rs 25,000 + Rs 25,000 = Rs 50,000

You + your family + your parents (senior citizen)

Rs 25,000 + Rs 30,000 = Rs 55,000

You (senior citizen) + your family + your parents (senior citizens)

Rs 30,000 + Rs 30,000 = Rs 60,000

Source: https://www.bankbazaar.com/tax/section-80d.html

For instance, if you are 60 years old and your parents are in their 80s: 

Premium you pay for yourself and your family = Rs 32,000

Premium you pay for your parents’ policy = Rs 35,000

You can avail of the following tax deductions:

  • Rs 30,000 on the premium you pay for yourself and your family (spouse and children)
  • Rs 35,000 on the premium you pay for your parents’ policy

Hence, you can claim a total tax deduction of Rs 60,000 on your overall premium of Rs 67,000.

However, do note that premiums paid for your parents-in-law are not eligible for tax deductions.

2. Give or receive cash gifts

Any cash received as a gift from your spouse, your parents, or parents-in-law is tax-free (below Rs 50,000 in a tax year). 

However, when you invest the cash gifted by your spouse, it gets added to your taxable income due to the provision for clubbing income under Section 64 of the Income Tax Act. To save tax, you may use this cash to invest in tax-free investment instruments such as Equity-Linked Savings Scheme (ELSS), Public Provident Fund (PPF), tax-free bonds, Unit-Linked Insurance Plans (ULIPs) etc. These investments will allow you to earn tax-free returns.

Gifts received from the following are exempted from tax, under income tax laws:

  • Your spouse
  • Your siblings
  • Your spouse’s siblings
  • Any of your lineal ascendants or descendants
  • Any of your spouse’s lineal ascendants or descendants 
  • Under a will or inherited on your marriage
  • In contemplation of the death of the person who is giving the gift


3. Pay rent to your parents 

If you are a salaried employee who is living with your parents, you can pay an amount as a rent to your parents and claim House Rent Allowance (HRA) from your employer. This rent reduces your taxable income, thereby reducing your tax liability.

However, your parents will be taxed on this amount:

Do note that in order to claim HRA, the house should be legally owned by your parents.

4. Seek a joint home loan

You can get a tax exemption if you purchase a home in your wife’s name. One of the major benefits is the extra deduction of interest up to Rs 1.5 lakh every financial year, if the house is self-occupied. 

Additionally, if you and your spouse have taken a joint home loan, you are both eligible for income tax benefit. According to existing IT laws, both loan applicants can claim tax deductions on the principal repayment under Section 80C and on the interest amount under Section 24.

Another option is to make investments via your spouse. Consider investing in a tax-free instrument such as PPF or ELSS through your spouse, who may be non-working or in a lower tax bracket. 

5. Invest for your child 

If you invest in a minor child’s name in an ELSS, PPF, or any other investment specified under Section 80C, your taxable income will be reduced by that amount. You can claim a deduction of up to Rs 1.5 lakh on your combined income. 

If your children are 18 or older, they will be treated as separate individuals for all tax purposes, meaning their income will no longer be clubbed with your taxable income. Make sure you file separate returns for them so you can claim deductions under Section 80C, 80D, etc.

6. Open a Sukanya Samriddhi account 

If you are the parent or legal guardian of a girl child you could open a Sukanya Samriddhi account. Sukanya Samriddhi Yojana is a government initiative that helps parents save money for their daughter’s higher education and marriage. The scheme offers not just financial security for your daughter but also offers EEE tax exemption under Section 80C. You can contribute between Rs 250 and Rs 1.5 lakh per annum towards the scheme, and the maximum tax exemption you can avail of is Rs. 1.5 lakh.

Additionally, if you have taken a loan for your child you could use it to save tax. According to Section 80E of the IT Act, interest paid on education loans can be claimed as deduction.

Section 80C of the IT Act also provides tax deduction for children’s tuition or education fees. As a parent, you can avail tax deduction up to Rs 1.5 lakh under Section 80C along with other investments qualified for this deduction.

Conclusion

As you just saw, your family can be of great help while planning your taxes. The methods mentioned above can help you bring down your overall tax liability. However, make sure that every financial transaction you make to save on taxes is above board so you don’t find yourself on the wrong side of the law!

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.