Top 10 Unusual Ways to Save Income Tax

Contribute more to National Pension Scheme

If you are a subscriber of NPS, you may claim tax benefits under Sec 80CCD(1) with an overall ceiling of Rs. 1.5 lac under Sec 80 CCE. What you may not know is that you can claim an additional deduction of Rs.50,000 under Section 80CCD(1B) of Income Tax. So, to save taxes, increase your contribution to the national pension scheme to avail of the full benefit of the NPS scheme.

Deductions for children's tuition fees

If you are a parent, you can claim a deduction on the amount spent as tuition fees to a school, university, college, or any other institution. If you have kids, you can claim a deduction of the money spent on tuition fees. In a financial year, the maximum deduction on tuition fee payments that can be claimed, together with the deductions for insurance, provident fund, pension, and other investments, is Rs 1.5 lakh. This deduction is available for a maximum of 2 children. All these deductions can be claimed under section 80C.

Wedding Gift

A wedding is a huge occasion in India. The couple receives so many gifts from the guests. Such gifts are exempt from taxation under Section 56(2). Gifts received on your wedding day, whether in the form of a gift, cash, or cheque, are exempt from tax under section 56(2). This means you can claim tax benefits on the gifts you receive from your friends and relatives.

Gift or Lend Money to your Adult Child

Investing extra income or capital gains yourself means any resulting income will be taxed at your usual rate. However, if you have adult children, gifting or providing them with loans for investments can save you a lot of tax.

By having your children invest these funds, any interest, dividends, or capital gains they earn will be taxed at their potentially lower tax bracket. This can result in significant overall tax savings for your family.

Route your Investments through Parents

Senior citizens are entitled to special tax benefits. You can re-route your revenue from investments if your parents have a low income. So if you earn Rs.1 lakh in interest, instead of including it in your taxable income for the year, you can transfer the money to them tax-free. You can gift this money to your parents tax-free using a gift deed or make investments in their name. They can reinvest it in lucrative senior citizen schemes like a Senior Citizen FD, Senior Citizens’ Savings Scheme, and more.

Save tax as HUF

Indian tax law recognizes the Hindu Undivided Family (HUF), a unique entity rooted in traditional Hindu social structures, represented by its Karta (head). If you have income beyond your salary, allocating these additional sources to a HUF can significantly lower your tax burden.

The HUF is treated as a separate financial entity for Hindus, Sikhs, Jains, and Buddhists. It can act on behalf of all its members. Family members can contribute their personal income to the HUF as gifts, avoiding individual taxation on subsequent investment income generated from these funds.

Money Spent on Donation / Charity

Tax deductions can be claimed for charitable/ donations and philanthropic undertakings. Depending on the purpose, some donations are eligible for a 100% deduction, while others are for a 50% deduction. However, you need to keep in mind that only donations made in cash (maximum upto Rs.2000) or cheque-based donations are eligible for deductions.

Expenses for Telephone and Internet

According to Rule 3(7)(ix), telephone reimbursement provided to employees is not taxable. If your office work necessitates the use of a mobile/telephone/internet connection, you are entitled to a full exemption of the billed cost.

Pay for Parents Health Insurance

Section 80D allows a taxpayer to claim a deduction of up to 25,000 INR. It is available for paying the health insurance premium for yourself and your family. If you pay the premium of medical insurance for your parents, then you can claim an additional tax deduction u/s 80D upto Rs.25,000 for individuals below 60 years of age and upto Rs.50,000 for individuals 60 years and above.

In addition, if your parents are not covered under any insurance policy, you can still claim a deduction of up to 50,000 for the medical expenses made during the year.

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Claim HRA by Paying Rent to Parents

Staying with your parents in a joint family can offer tax benefits. By paying them rent, you create a legitimate income stream for them, allowing you to claim a House Rent Allowance (HRA) deduction. This also contributes to their financial independence.

Here's how it works: your parents (the homeowners) can deduct up to 30% of the received rent for house maintenance expenses. Only the remaining 70% is considered taxable income for them. If your parents co-own the property, they can split the rental income, potentially leading to further tax savings.