How your family members can help you save tax

Have you ever thought about your family members helping you in saving tax? There are a few tax breaks available to you because of the relationship you have with your family. Your parents, spouse and children can help you save tax. All of them are explained here in detail with headings-

Parents

1. Health Insurance-Buy health insurance for your parents: If your parents are above the age of 60, you will get a deduction of up to Rs. 50,000 for the insurance premium paid. Even if they are below the age of 60, you will get a deduction up to Rs.25,000. (Section 80D)
2. Investment made in their name: If your parents do not fall in any taxable category, gift some money to them and then invest the money in the Senior Citizens’ Savings Scheme, fixed deposits or post office. Senior citizens get an exemption up to Rs. 50,000 on interest earned on such savings. If the interest amount is higher than this amount, the tax payable will be less only. Other than senior citizens, the exemption is capped at Rs. 10,000.
3. Rental payment: Salaried employees who stay with their parents can claim HRA exemption if the house is owned by the parents. If the parents are covered by a lower tax bracket or fall in a tax-free category, then it will help save tax. Under section 24 a deduction of 30% of the annual rent for repairs and maintenance is available. In case the rental income is more than Rs. 1 lakh, PAN card details shall have to be given.

Spouse

1. Joint Home Loan: When a husband and a wife take a loan jointly, they can claim tax benefit on account of being co borrowers towards the payment of the loan amount plus the interest. Under section 80C and Section 24 respectively, each of them can claim a deduction up to Rs. 1.5 lakh towards principal and Rs. 2 lakhs for interest amount.
2. Education Loan: If any loan is taken for the higher studies of the spouse, then a tax benefit can be claimed under section 80E. It can be claimed for the interest amount for up to eight years and it will start from the year in which the repayment starts. This loan can be taken from a bank, or any other financial institution approved by the government for this purpose. The amount is deductible from the total taxable income.
3. Granting a loan: You can give a loan to your spouse if he/she has no income or low income. The interest on such loan will be taxable in your hands but is he/she invests the same amount at a higher rate of interest, and you charge a lower interest from him/her then it can benefit you. Capital gains of less than Rs. 1 lakh will be tax free in a year for the investments made.

Children

1. Health Insurance: Health Insurance of your spouse and children are allowed for tax exemption, this deduction will be within the overall limit of Rs.25,000/Rs.50,000. This includes a deduction of Rs. 5000 for any payments made towards preventive health check-ups.
2. Education Loan: Take a loan from a banking or financial institution approved by the government for the education of your child and get a tax deduction on repayment of interest for up to 8 years starting from the year in which the interest payment begins. (Section 80E)
3. Tuition fee/education allowance: Tuition fees paid for a maximum of two children each year can be claimed under section 80C if the limit is not exhausted already. Salaried employees are allowed an exemption of Rs.100 per month, per child, up to two children by way of education allowance and Rs. 300 per month as hostel expenditure allowance.
4. Savings bank account in the name of the minor: You can get an exemption of Rs.1500 per child, for maximum of two children each year against the interest income earned in a savings bank account opened for your children under Section 10(32).
5. Investments made for child in PPF, Mutual Funds etc.: Invest in your child’s name in the PPF, ULIPs and some of the Mutual funds which are entitled to tax benefit under section 80C. Equity mutual funds can also be used and if the gain is less than Rs. 1 lakh a year, it will be beneficial to you in saving tax.
6. Deduction for a dependent child with disability/disease: Under Section 80DDB a tax benefit is allowed on the expenses incurred for spouse, kids, parents or sibling with disability or a specified disease that requires heavy medical expenditure. If the dependent is less than 60 years of age and suffers from a specific disease, deduction of Rs. 40,000 or actual expenses whichever is lesser, shall be allowed. For the dependents above the age of 60, a claim of Rs. 1 lakh or actual expenses is allowable. for the disability ranging between 40-80%, a deduction of Rs. 75,000 and for more than 80%, Rs.1.25 lakh is allowed by way of a deduction.
7. Investment in adult children’s name: An adult child has to pay his/her own taxes. But if the child is having lower income or falls in tax-exempt bracket, you can gift money to him/her to invest the same in tax-free instruments.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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