Under Income Tax Act, 1961, the government of India imposes a tax on every individual whose income is taxable. The Income Tax is the key revenue generator for the government.
Every individual pays a certain amount to the government for the particular financial year. Levy of income tax is different for every individual according to his/her income slab and rate. However, along with paying taxes you can claim certain deductions under various categories. And it is why people plan their tax properly. It is also necessary for working couples to be good with taxes.
What are tax deductions?
Tax deductions are deductions made from your taxable income to help you save taxes. You can claim deductions under various categories according to your expenses and investments. Expenses such as tuition fees, medical expenses are valid to claim deductions. Whereas, investing in life insurance plans, retirement savings schemes, and national savings schemes, etc helps you save both income as well as income tax.
Tax saving tips for working couples:
Are you just married and planning to invest and save money with your spouse? As individuals if both of you are working, both of you are liable for taxation. However, you can save taxes through deductions both, individually and with your partner for life. Following are some tips, you might want to consider while planning your expenses and investments:
1. Deductions through investment
When both spouses are working, it is advantageous for both to do investments and claim deductions. However, when deduction limit is not crossed, it is advantageous for the spouse with the higher income to claim deductions on investments. As higher the income, higher the tax outgo.
2. Make the most of home loan tax benefits
Most young couples dream to buy their own home. In most of the cases, buying a home means seeking a home loan first. While seeking a home loan, the couple must go for Joint Home Loan.
By availing a Joint Home Loan, the couple can claim for a tax deduction on the principal amount up to the limit allowed under section 80C of the Income Tax Act. They can each claim for up to Rs. 1.5 lakh on the loan they are paying. However, the deductions are available for spouses who have proportional ownership in the house that is 50-50 share of the ownership.
3. By claiming HRA
House Rent Allowance (HRA) is for salaried individuals who live in rented houses. Individuals can claim HRA to lower down the tax outgo. In a couple’s case, if one of the spouses owns the house, the other partner can pay him/her a rent and claim HRA. However, the spouses can simply share the HRA if they reside in a rented house.
4. Creating HUF
As a couple, you can form an HUF (Hindu Undivided Family) and transfer additional income to it such as income generating assets. You can also transfer incomes received from any individual as a gift to you. Any income received to the member of HUF is taxable only under HUF and not to the individual. One can claim the same deductions for an HUF as for an individual, this way your total tax outgo will be lesser.
5. By forming a trust
Spouses can form a trust as per Section 164 of the Income Tax Act. A trust is to safeguard the interests of a beneficiary. Spouses can create trust for their unborn child by transferring funds and income generating properties to the trust. One can also create trust for his/her grandson/granddaughter. The rent of the property is taxable and allowed for deduction.
6. Making use of Leave Travel Allowance
An individual can claim Leave Travel Allowance (LTA) once in every 4 years. As a couple, you can travel every year using your respective LTA alternatively every year. Thus, every year you can take a vacation and enjoy the benefits.
7. Keeping a check on drawings
Drawings are withdrawal of funds from an account. Make sure the one with the higher income slab does the most drawings. In relation with investments, if the one with the higher income slab does the drawing and investment, he/she is liable for lesser tax after claiming the deductions.
The above tips were especially for young couples. However, older couples may also save taxes using these tips. There are many other allowances such as academic allowance, hostel allowance, etc, for which you can claim deductions.
The government gives us various opportunities to incorporate savings in our day-to-day life and along with that save taxes. By proper planning of home, finances and savings, you can save taxes. There are several allowances provided to individuals for which one can claim deductions. As a couple, too you can save taxes by opting for saving schemes and claiming deductions.