Know How to Reduce Your Tax payments with spouse

Are you planning to buy your dream home? When the home belongs to both of you, then why not contribute to the loan jointly?? Doing this will ensure you enhanced tax saving, lets analyse how.

For availing home loans, furnishing your Income Tax Return is a mandatory condition. As you and spouse are both earning members you should avail housing loan on cumulative income. This will entitle you to increased tax benefits in these two ways

• Section 24B
  The interest you pay on home loan is eligible for deduction upto Rs.2,00,000/- u/s 24B of Income Tax Act 1961. Being sharing the loan liability jointly each one of you can claim deduction upto Rs.2,00,000/- . Aggregating your total deduction of interest paid to Rs.4 Lakhs.
• Section 80C
  The principal part of installment you pay will give additional tax benefits under section 80C. Principal amount repaid upto Rs.1,50,000/- is deducted from your gross income individually. Which means if you apply for the loan jointly you as a unit can take total deduction of Rs. 3 Lakhs.

You might have clearly understood how easily can work wisely to double your family tax savings. That too at no extra cost!!

A point of caution being here is that for availing tax benefits equally, you should pay installments in equal proportions. I.e. 50-50

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Being Joint holders of Life Insurance policy

When the mutual aim behind taking life insurance policy is to secure life of other surviving partner. How about the initiative to take joint policy. Taking joint policy will resort to your purpose of insurance together with will entitle you to maximum tax savings. Life insurance qualifies as an instrument of tax saving under section 80C. If installments are paid jointly for the policy you can distribute them in the ratio of premiums, calculated based upon your respective age.

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Working under a HUF

Hindu undivided family is a business entity which has its distinct existence as per tax laws in India. HUF can be formed by any Hindu family members working jointly. Separate existence leads to distinguished identity for which a separate bank account, PAN and Income Tax Return etc are needed in the name of HUF. This entitles you to extra 80C 1.5lakhs limit, extra limits for availing home loan deductions and extra all section 80 limits.

This will even be more beneficial if you and your partner fall under higher tax bracket. You divert income from properties held jointly to HUF so that tax can be charged at lower rates.

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Investments should be made considering individual tax slab

The discussion would be better understood by dividing it in three subparts when couple has Unequal Tax brackets

• Create wealth
  Say if you earn income of Rs. 6 lakhs and your spouse brings home Rs. 11 lakhs. And you cumulatively took decision to invest out of family funds of Rs. 1 Lakh in tax saving instrument say PPF this year. It would be a smartest choice if you invest in the name of higher earning member. So that you can tax benefit of difference in tax rates applicable in both cases
• Money earned = money saved
  Whether you earn money or save any, both ensure capital appreciation. If your spouse is in higher tax bracket, he/ she will focus more on tax saving instruments to invest in. And, if you are covered under lower tax rates it would be wise to invest in high yielding tax saving instruments. This will lead to increased returns for family.
• Tax saving investments limits exhausted
  If your tax saving investment limits are exhausted you can still invest in name of wife in instruments which yield tax free return. This won’t increase your tax saving but will ensure tax free return and amount reinvested will be clubbed for future in hands of your wife and if she falls in lower tax bracket it will benefit you in overall higher tax saving and higher income.

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Availing Leave Travel Allowance

You got another reason to plan trips. The significant expenditures incurred by a family includes travelling. As per LTA rules you can claim the benefits twice in a period of 4 years. Which means if you both alternatively avail the benefit you guys can plan a free trip once a year. This will save your expenditures and will help you build capital.

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Taking use of House Rent Allowance

HRA is received by salaried employees and forms noticeable part of your monthly salary. If you reside in a rented property you can share the rent and claim HRA accordingly. Otherwise if you live in your own house one can pay rent to other and can avail benefit of the provisions to offer lower income for taxation purposes.

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Creating a TRUST

Same like HUF, TRUST is taxed in its own capacity under section 164 of Income Tax. So parents can transfer there some property to trust made for either

• Unborn child
  This is not necessary that the beneficiary of a trust is the living person. The beneficiaries of trust in this case would be the unborn child or the hospital or the charitable institution.
• Minor child
  The income will not be clubbed in the income of guardian if a provision in trust deed is inserted that the benefits of trust will be used for child only after he attains majority.
• Prospective spouse of minor
  Trust can be created for beneficiary being Prospective spouse of minor. For the uncertainty involved, there should be addition of a clause to the trust deed that in case of non happening of such thing the benefits of trust will be used for some charitable purpose.

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