We are just a few months away from the financial year end, and most of us would by now have started this year’s tax planning. For a working couple, an efficient tax plan could be achieved, by jointly making use of, their dual income to invest, and the income tax rules to their advantage. Here are six smart tips from Investment Yogi, to help couples save more and maximize wealth.
1) Using Investments Efficiently
If spouses fall in different tax brackets, it is advantageous for the spouse in the higher tax bracket to claim deductions from the tax saving investments, which the couple has invested in, together. For example, let us consider the case where both spouses make investments for a tax deduction of up to Rs.1, 00,000, respectively. In case one of the spouses has insufficient investments to fully meet his limit of Rs. 1, 00,000, then the investments made should be used for a claim by the spouse earning more. In this way, a lesser amount of his salary would be attracting the high tax bracket rate.
2) Joint Home Loans
When seeking a home loan, it is advantageous for couples to opt for joint loans. By this, spouses could individually claim a maximum deduction of Rs 1 lakh on the principal repayment* and Rs 1.5 lakhs on interest payment, for the same home loan. Thus, together the couple gets to claim Rs. 2 lakhs principal repayment and Rs. 3 lakhs interest repayment. The income tax benefits are applicable in proportion to the ownership structure. For example, if the ownership in a property is 50:50, the loan amount would split accordingly and this ratio will be applicable while calculating tax benefits on interest/principal repaid on this loan.
*In the new DTC, the benefit on principal repayment has been removed. Check the DTC guidelines for further information.
3) The HRA Aspect
It is advantages to make use of one’s house rent allowance (HRA) as it is partially exempt from tax, provided rent is actually paid. If, one of the spouses owns the house, the other spouse could pay rent to him/her, to claim HRA, thereby reducing his taxable income. If the couple resides in a rented house, the HRA exemption for the rent paid, could be shared by the couple.
4) Using LTA Benefits
As per the current rules, LTA benefits could be claimed twice in a block of four calendar years. While claiming LTA (Leave Travel Allowance), spouses should claim exemption alternatively each year. This way, together they could claim an LTA exemption of four journeys in a block of four years. There is no need for them to take the precaution of not travelling twice during the same year.
5) HUF Benefits
Have you and your spouse received gifts that are considered taxable? Then starting an HUF could prove to be quite a saving. Any income received by an individual as a member of a HUF (Hindu Undivided Family) is taxable only in the hands of the HUF and not in individual capacity. The HUF income has the same slabs and exemptions as for an individual. Thus, through an HUF, couples could get, a separate exemption of Rs 160,000, additionally.
6) Tax Saving Through a Trust
Spouses could get additional exemptions by creating a trust as per section 164 of Income Tax Act. A private trust could be created for unborn son or daughter, or for the future spouse of existing son or daughter, by allocating fund to the trust through transfer of property, rent of which shall be income of the trust.
To Conclude….
The Income Tax department gives us various avenues to help save tax. Optimally using these avenues and structuring finances sure does provide a great deal of monetary gain.
Written for InvestmentYogi by Ramya Ramachandran
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