How Can Your Family Help You in Saving Tax?
Indeed, the love of a family is life’s biggest blessing. Under the umbrella of family’s love, you feel mentally secure. But do you know, along with mental support, you can also increase financial well being through your family? Here are some ways through which your family can lighten your tax burden:
- Buy a Family Health Insurance Policy:
Not only does a health insurance policy protect you from rising medical costs, but it also helps you save tax. If you buy it for yourself, you can save tax up to Rs 25,000, but if you buy it for your parents (who are above 60), you can save tax up to Rs 30,000.
A quick look at the tax benefits on health insurance policies:
|Cases||Self, Spouse, and Kids||Parents (whether dependent or not)||Total tax deduction|
|All family members are below 60 years of age||Rs 25,000||Rs 25,000||Rs 50,000|
|Except parents, everyone is below 60 years of age||Rs 25,000||Rs 30,000||Rs 55,000|
|All family members are above 60 years of age||Rs 30,000||Rs 30,000||Rs 60,000|
Similarly, you can get tax-benefits for preventive health check-ups for up to Rs 5,000 as well. The tax benefit is available on your family’s health check-up as well. Though, you can get tax benefit on both medical insurance as well as preventive health check-up, the total tax deduction cannot exceed the total limit of Section 80D.
- Buy Child Education Plan:
Child education plan is a combination of insurance and investment that ensures a secure future for your child. These child education plans not only help parents manage the inflating education costs, but they also give guaranteed payouts at the desired time to meet different needs of your child. In addition to securing the future of your child, these plans let you save on tax as well.
The premium paid towards a child education plan qualifies for a deduction under Section 80C of the Income Tax Act. Also, any income received from the child education plan is tax-free under Section 10(10D).
- Submit Receipt of Children Tuition Fees:
Any sum paid as tuition fees to any university/college/educational institution in India for full-time education of maximum two children is deductible under section 80C. However, the tax benefits are not available for payments made towards development fees/donation or other similar expenses.
- Pay Rent to Your Parents:
If you are a salaried taxpayer and you live with your parents, you have the option of paying rent and claim tax exemption under your HRA (House Rent Allowance). However, the house should be registered in your parent’s name.
- Invest in the Names of Family Members:
Exhausted the limit of Section 80C? Give some money to your non-earning spouse and get a tax incentive. However, if your spouse further invests the money, the returns earned from such investment options would be considered as income of the proposer, and thus, taxed accordingly.
But if your spouse invests money in tax-free instruments, like Equity Linked Saving Scheme (ELSS) and Public Provident Fund (PPF), the long-term gains become tax-free. You can use this strategy, even if your spouse is working, but falls in a lower tax bracket.
Similarly, you can also invest through your parent’s name and save tax. So, make use of the exemption limit— Rs 2 lakh for upto 60 years, Rs 2.5 lakh for people above 60 and Rs 5 lakh for people above 80 years, and invest accordingly. In case, your parents cross the tax exemption limit, help them save tax by investing in tax-free options.
Like parents and spouse, you can give money to your adult children (above 18 years), which will be tax-free in their hand, provided it is below the taxable limit. Further, if the child invests the money, any returns on such investments would be taxable in his/her hand and will not be merged with your income.
Any gains received from the investments made in the name of the minor child get added to the parent’s income and is taxed accordingly. However, you can claim tax exemption up to Rs 1,500 per child/year up to a maximum of two minor kids.
- Loan to Spouse:
Tax exemption will be available if you make a payment to your spouse and specify it as a loan. Further, if you have purchased a house in your wife’s name or have transferred the second property in her name, the rental income from that property will be tax-free, provided she pays you some amount as interest.
All the above-listed provisions can help in bringing down your tax liability, but only if the other person belongs to a lower tax slab. While you can buy child education plans and family health insurance policies without worry, be vigilant while investing in your family member’s name as any concealment of tax can lead to penalties.