Income tax planning need not be a cumbersome task when you address each aspect of your income and deductions with care. It is common knowledge that certain investments and expenses will allow you to claim tax deductions under Section 80 and its subsections. However, if your yearly taxable income puts you in a higher tax slab then you can turn to unconventional tax-saving methods. Here are a few unusual ways you can save income tax.
Reduce tax as a Hindu Undivided Family (HUF)
As a resident citizen in India, you can represent yourself as a HUF. If you have multiple sources of income or have a high income, filing your income tax return as a HUF will benefit you. As per the law, HUF is an independent financial entity and lineal ascendants and descendants of Hindu, Jain, Sikh, or Buddhist families can represent this unit.
Say you and your spouse individually earn Rs.10 lakh and Rs.7 lakh comes your way every year as rent from one of your properties. If you or your spouse individually claim the rent income, basis the tax slab you qualify for you will have to pay 20 percent to 30 percent tax on this income. On the other hand, as a HUF, you can claim the rent income on your family’s behalf and pay only 10 percent tax. Moreover, when filing tax, if you show any income as a gift from a family member, you do not need to pay tax.
Donate and claim up to 100 percent tax exemption
As per the income tax laws, donations to qualified charities can fetch you 50 percent to 100 percent exemption from tax on the amount donated. The amount of deduction allowed will depend on the nature of your donation. You can claim 100 percent deductions for charities under Section 80G. So, you may choose to donate a considerable amount for funds like the National Defence Fund, the Prime Minister’s National Relief Fund, and the National Foundation for Communal Harmony.
Likewise, you can donate up to 10 percent of your gross income every month to a political party in India and claim a complete deduction on the sum you donate under Section 80GGC. Remember to choose registered political parties and donate genuinely only when you believe its ideals. Be cautious that you’re not doing it just as a tax-saving exercise!
Claim HRA deductions by paying rent to your parents
In case you do not have a home of your own and are staying with your parents, then as per tax laws, you can claim HRA on your salary by showing that you are paying rent to your parents. Based on the HRA deduction allowed for your tax slab, you can prove that you are paying your parents such amount as rent every month. In order to raise such claims, you will have to be very particular about the proofs you are furnishing. Any false claims can land you in trouble.
Invest Through Senior Citizen Parents
Your senior citizen parents enjoy special tax breaks. In case they have a low income to their credit you can re-route your income from investments, be it via ELSS or other mutual funds and equity, their way. This means if you have an interest income of Rs.1 lakh, instead of adding it up to your taxable income for that financial year, carry out a tax-free transfer of this amount.
Gifting this money to your parents is completely tax-free, and they can further reinvest it in profitable senior citizen schemes like a Senior Citizen FD, Senior Citizens’ Savings Scheme and more. This way, you will not only reduce your tax liability but also get a chance to either contribute to your parent’s retirement or earn higher gains for yourself.
Reinvest Your Gains
If you’re short of cash for fresh tax-saving investments, you can smartly withdraw from existing investments. These withdrawals can be reinvested in new tax-saving products. For example, your ELSS units that have been locked in for longer than three years can be withdrawn and reinvested in another ELSS fund or any other investment of your choosing.
Claim additional medical exemption by paying your parents’ insurance premium
Under Section 80D, you are eligible to claim a deduction of Rs.25,000 basis the health insurance premium you pay every year. You can easily add to this benefit by paying your parent’s medical insurance premium too.
If your parents are up to 60 years of age, you can claim an additional Rs.25,000 when you pay their premium. On the other hand, if they are above 60, you can claim up to Rs.50,000 on their health insurance premium payment.
Using these tips, you can claim deductions in a number of unconventional ways and reduce your tax burden.
The writer is the CEO of BankBazaar.com