Tax savings in one of the major concerns while managing the personal finance. Anyone never prefers the outflow of their hard earned money in taxes. Specially with the increasing income higher tax slabs are invited and the amount of tax to be paid becomes very high. We think ourselves as smart but taxman is smarter to make a catch. So, the better option is to manage within all the legal boundaries. You can get the help of your loved ones: your spouse, parents and children for investments and save tax on returns.
All these relations do not invite any tax on the gift items. So, you can transfer any amount in their account. Now the return of investment will be taxable. And also you have to take care of the clubbing of income and minors. Any type income of a minor is clubbed in yours. So, here the benefits through investment on children is only for non minor cases. Let us see the detailed structure where and how the investments are possible.Flickr]
Buy A New House
You can only claim one house as self occupied. So, a second house on your name will be for business purpose and will invite higher tax slabs or the interest amount will not be tax free. So, you can use the options mentioned below:
- Buy the home on your spouse name. But any return like rental income from that will be clubbed with your income and is taxable. So, take the partial loan on your spouse name and the rental income can be used to pay the taxes. Or otherwise give the loan to your wife and buy the house. You can give the loan against her jewellery or any other asset she owns. And if your wife is earning make a combined investment. The major investment should be hers. This is because any return from the same will be clubbed with the income of major investor. So, you can use your money for other purposes and make her the major investor of property on her name.
- Buy the new home on children’s or parents’ name. Here the rental income will not be clubbed with yours. So, you can gift the amount to them and to buy property on their name. Other options are as mentioned for the spouse.
Investment In PPF Account
You can deposit your money in the PPF account which is tax deductible. But the annual ceiling amount which tax deductible is Rs. 70,000. Here also your loved ones can help you:
- If you save less than Rs. 70,000 in your PPF. Then your children’s PPF account is can help you to increase the limit. But remember the combined upper limit of your and your child’s PPF account is Rs. 70,000 annually.
- You can invest in your spouse PPF to save the taxes.
- Also, the transfer to your parents PPF account will be helpful. This is very beneficial if you want to save beyond Rs. 70,000. Because the limit for you and your parents is separate.
Investment In Other Sources
- The return from the investment of money gifted to your spouse with be clubbed with your income.
- You can open a demat account on your parents or children’s name. Gift them the money and the returns will be their income. This will help you to manage the taxes in lower slabs. And if they are not earning, short term capital gain tax of 15% will not be charged if it is within the basic exemption limit.
- You can also save taxes through parents by paying them HRA, invest in their health insurance and life insurance policies.
- Also, a limited amount of savings by your wife from the amount given for household expenses is her income. And the clubbing rule will not apply here.
So, act smartly and go by the above mentioned options to save taxes. Here, taxman also does not have a catch against you. And you can manage your personal finances in your own way.