Depending on the income that you generate each year, you’re required to pay a percentage of it as tax to the Income Tax authorities. Although many of us do it diligently year after year, we always tend to look out for opportunities and provisions that help us reduce our tax burden.
That’s not all. Before every Union Budget presentation each year, one of the many expectations that individuals consistently have is some sort of a reduction or relaxation in the tax provisions, allowing them to save tax. If you’re on the lookout for ways to reduce your tax liability, here are some provisions that can allow you to do just that.
How to Save Income Tax?
If you’re a married individual, there are multiple ways through which you can save your income tax. One of the simple ways is to enlist the help of your spouse. Yes, you read that right. Marriage need not always be about sharing responsibilities. It can also be about sharing the tax burden as well.
By redirecting certain income tax deductions over to your better half, you can intelligently reduce your spouse’s taxable income, if any. This way, you would not only be sharing the tax burden, but also be lessening the ultimate impact of tax on the both of you. Continue reading to find out just how you can enlist your spouse’s help for reducing your tax burden.
How can your Spouse be helpful in Saving Tax?
There are few ways through which you can save tax with the help of your spouse. Here’s a more in depth look at each of the methods.
1. Through a health insurance policy for your spouse
According to section 80D of the Income Tax Act, 1961, you can claim the health insurance premiums that you pay as deductions from your total income to the tune of Rs. 25,000 in a financial year as per the provisions stated therein. This deduction limit of Rs. 25,000 is available to you for health insurance plans that you purchase for yourself and your family (limit increased to Rs. 50,000 for a senior citizen).
So, if you find that the health insurance premium that you pay for yourself is lower than the Rs. 25,000 (or Rs. 50,000) limit, you can simply avail a health insurance policy for your spouse and include the premium that you pay towards it as a deduction under section 80D. This way, you can avail the deductions offered under this section, allowing you to save tax as much as possible.
Here’s a tip that you can follow. When you’re unsure of the amount of tax that you’re likely to save, always remember to enlist the help of an income tax calculator to help you plan better.
2. Through a joint life insurance policy
When filing your income tax return, you might have come across section 80C, which is a provision that allows you to claim certain expenses as deductions from your total income to the tune of Rs. 1.5 lakhs in a year.
Under section 80C of the Income Tax Act, 1961, the premium that you pay for a life insurance policy can be claimed as a deduction to the tune of Rs. 1.5 lakhs per year as per the provisions stated therein. Now, to maximize the deductions under this section, you can purchase a joint life insurance policy along with your spouse.
When you do this, the premium that you pay towards this joint life insurance can be claimed by both you and your spouse individually. This can be especially useful if the premium exceeds Rs. 1.5 lakhs, where you can agree to split the deductions between the both of you to ensure that you receive maximum benefit.
3. Through a home loan
Section 24(b) of the Income Tax Act, 1961 allows you to claim the interest that you pay towards a home loan as deduction from your total income to the tune of Rs. 2 lakhs in a year as per the provisions stated therein.
You can double the tax benefit offered by this section by simply enlisting the help of your spouse. For instance, if you borrow a home loan with your spouse as a co-borrower with a ratio of 50:50, the deduction of Rs. 2 lakhs under this section can be claimed by the both of you individually when filing your respective income tax returns. This would effectively increase the total deduction to up to Rs. 4 lakhs simply through a combined effort from you and your spouse.
Similarly, the provisions of the Income Tax Act, 1961 also allow you to claim the repayment of the home loan principal amount up to Rs. 1.5 lakhs each year. By co-borrowing with your spouse, both of you can avail this deduction individually, increasing the total deduction to Rs. 3 lakhs.
4. By sharing educational expenses of children
Section 80C of the Income Tax Act, 1961 also allows you to claim your children’s tuition fees (up to 2 children) as a deduction from your total income to the tune of Rs. 1.5 lakhs every year.
But what if your children’s tuition fees exceed Rs. 1.5 lakhs or if you have more than 2 children? In such cases, you can enlist the help of your spouse to split the tuition fees between the both of you to ensure that you receive maximum benefit provided by this section.
Here’s a tip for you. Remember to file your spouse’s and your income tax returns without fail before the due date. One of the benefits of filing ITRs is the ability to claim deductions. Without filing it on time, you cannot claim any deductions whatsoever.
5. Through equity investments
Although long-term capital gains are now being taxed, you’re still provided an exemption to the tune of Rs. 1 lakh each year. So, as long as your capital gains during each financial year is less than Rs. 1 lakh, you won’t have to pay Long-Term Capital Gains Tax (LTCG) under Income Tax Act, 1961 subject to provisions stated therein.
Since this exemption is allowed to every single taxpayer, you can enlist the help of your spouse by splitting your investments between the both of you. This way, you can limit your capital gains to Rs. 1 lakh each year and do the same to your spouse as well, giving yourselves a relaxation of up to Rs. 2 lakhs each year in terms of long-term capital gains.
Now that you’re aware of how you can save on income tax with your spouse, go ahead and consider implementing these strategies before the end of this financial year. Also, while you’re at it, don’t forget to file both your and your spouse’s income tax returns on time since one of the major benefits of filing ITRs is the ability to avail deductions. Without filing your ITRs or filing them past the due date can make you ineligible for the benefits of filing income tax returns.