Haven’t you gotten bored of regular tax saving tips? Are you looking for some tips which are different, kinda unique and not very well known? If yes, then you’re reading the right article, mate! I will share some tips which would help you in area of tax saving. Some of these tips will help you in this, current year and some, at some later point. But helpful at some level, they will be
1. Gift money to your major children and Save tax on Future Income
Imagine this, you have Rs 25 lacs. Logically you put this in a fixed deposit or invest in some other financial product through which you get an interest at 8%. You will get Rs 2 lacs as interest which will be added to your income and you pay tax on this income. Not good!
Now what? How do we save tax on these 2 lacs? As per income-tax laws you can gift any amount of money to your major children without attracting gift-tax and as their money will become theirs any income arising out of it would be treated as their income, not yours. In case their income is below the limits, there won’t be any tax.
However there can be times, where you might not feel too comfortable gifting away large amounts of money to your major children, in which case, there is another option of giving them loans. And guess what? you can make interest-free loans to your major children as per the law
2. Claim stamp duty and registration fees in 80C
Many people dont know this, but the Stamp duty and the registration fees of the documents for the house can be claimed as deduction under section 80C in the year of purchase of the house. An important point to note here is that you should be in possession of the house if you want to claim these deductions. So in case of under-construction properties, you lose out on claiming this deduction. As per the income tax
The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share or initial deposit or the cost of any addition or alteration to, or, renovation or repair of the house property which is carried out after the issue of the completion certificate by competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Income-tax Act will also not be included in payments towards the cost of purchase or construction of a house property.
3. Get deduction for rent even without HRA
All the salaries class people get HRA from their companies, and hence they claim deductions on that. However, what if you are self-employed professional or working for a company who does not provide you HRA benefit? Can you still claim HRA? Yes! But with some caveats.
Under Section 80GG, you can claim deduction of the rent paid even if you don’t get HRA. However not many people are aware of this deduction. If you are not being paid any HRA or don’t have any housing benefit from employer. You can claim least of following 3 things as HRA
a) Rent paid less 10% of total income
b) or Rs 2,000 a month;
c) or 25% of total income.
Note that your spouse or minor child should not own any house with the city limit if you want to claim this benefit , You will have to submit a form called 10-BA that you are paying rent and not receiving HRA.
A lot of people do not show their losses in shares, mutual funds, gold ETFs, real-estate in their tax returns. This is a big mistake, as you lose an opportunity to save tax in future years. You can set-off your losses against profits in current year as well as in the future too. For example : Assume you had sold your real-estate property and made a profit of 10 lacs after indexation. You will have to pay a tax of Rs 2 lacs @20%. However suppose in the same year you have also made a loss of Rs 4 lacs in stocks , you can set-off this loss with your 10 lacs profit and just pay tax on Rs 6 lacs , which comes at 1.2 lacs only. That’s a cool 80k in savings!
Also if you have only losses this year and no profits, you can show this loss in your tax returns and carry forward and set-off this loss against any future profits for next 8 yrs.
5. Buy House with Parent or Siblings as joint-owners
Yes, if you thought only spouse can be co-owner in the real-estate property to claim the tax deductions, you don’t know the whole story. You can have your spouse/parent/siblings as co-owner and all the co-owners can claims the tax deductions of 1 lacs for principal and 1.5 lacs for interest part . So if you take a housing loan with your siblings as co-owner of property and co-Borrower of loan, the loan amount interest and principle paid will be available for tax exemption in ratio of your loan amount.
So if you are still a bachelor or a single who wants to buy a house, consider asking your brother, sister or parents to become the co-owner so that both of you can get tax benefits and reduce your tax-outgo. The only problem in this case is that loan-sanctioning companies are very stringent in giving loans to siblings, as their are higher chances of you parting your ways with them later in case of any family issues, however in case of spouse it happens lesser.
6. Use education loan to lower tax for your Children in Future
So what, if you have all the money to pay for your children’s education fees? It would be wise to opt for an education loan in name of your children’s name as you can claim the full interest paid on education loan under section 80E. Note that its only available if you are a parent or a legal guardian . You can’t claim deduction for your spouse education loan
The other thing is that you can take education loan on your children name so that after some years when they pay off their loans, they can claim the deductions themselves. Apart from this, they’d be more responsible and this education loan payment from their pocket will make sure that they don’t spend to much money in wrong places and you can use your money today some where else!
7. Take unlimited deductions for your second home loan interest payment
If you have already bought first home where you are living right now and want to buy another house, the good news is that you can claim full interest paid for the EMIs of second house. As per tax laws, you can claim full deductions for the amount paid as interest on loan for second house.
For the first house you can claim up to 1.5 lacs in interest, however for your second house you can claim full amount of interest without any upper limit! . Read some tips on buying real-estate
Which of the above tips were new for you ? Can you share any tip which you know but its not covered here ? Please comment
1. Gift money to your major children and Save tax on Future Income
Imagine this, you have Rs 25 lacs. Logically you put this in a fixed deposit or invest in some other financial product through which you get an interest at 8%. You will get Rs 2 lacs as interest which will be added to your income and you pay tax on this income. Not good!
Now what? How do we save tax on these 2 lacs? As per income-tax laws you can gift any amount of money to your major children without attracting gift-tax and as their money will become theirs any income arising out of it would be treated as their income, not yours. In case their income is below the limits, there won’t be any tax.
However there can be times, where you might not feel too comfortable gifting away large amounts of money to your major children, in which case, there is another option of giving them loans. And guess what? you can make interest-free loans to your major children as per the law
2. Claim stamp duty and registration fees in 80C
Many people dont know this, but the Stamp duty and the registration fees of the documents for the house can be claimed as deduction under section 80C in the year of purchase of the house. An important point to note here is that you should be in possession of the house if you want to claim these deductions. So in case of under-construction properties, you lose out on claiming this deduction. As per the income tax
The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share or initial deposit or the cost of any addition or alteration to, or, renovation or repair of the house property which is carried out after the issue of the completion certificate by competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Income-tax Act will also not be included in payments towards the cost of purchase or construction of a house property.
3. Get deduction for rent even without HRA
All the salaries class people get HRA from their companies, and hence they claim deductions on that. However, what if you are self-employed professional or working for a company who does not provide you HRA benefit? Can you still claim HRA? Yes! But with some caveats.
Under Section 80GG, you can claim deduction of the rent paid even if you don’t get HRA. However not many people are aware of this deduction. If you are not being paid any HRA or don’t have any housing benefit from employer. You can claim least of following 3 things as HRA
a) Rent paid less 10% of total income
b) or Rs 2,000 a month;
c) or 25% of total income.
Note that your spouse or minor child should not own any house with the city limit if you want to claim this benefit , You will have to submit a form called 10-BA that you are paying rent and not receiving HRA.
Bonus tip : If you are staying with your parents, you can pay them rent. If they don’t have
significant income, it would mean you save tax on rent paid and even your parents income does
not cross the tax limits, which is a win-win situation.
4. Declare your losses in tax return to save tax in futureA lot of people do not show their losses in shares, mutual funds, gold ETFs, real-estate in their tax returns. This is a big mistake, as you lose an opportunity to save tax in future years. You can set-off your losses against profits in current year as well as in the future too. For example : Assume you had sold your real-estate property and made a profit of 10 lacs after indexation. You will have to pay a tax of Rs 2 lacs @20%. However suppose in the same year you have also made a loss of Rs 4 lacs in stocks , you can set-off this loss with your 10 lacs profit and just pay tax on Rs 6 lacs , which comes at 1.2 lacs only. That’s a cool 80k in savings!
Also if you have only losses this year and no profits, you can show this loss in your tax returns and carry forward and set-off this loss against any future profits for next 8 yrs.
5. Buy House with Parent or Siblings as joint-owners
Yes, if you thought only spouse can be co-owner in the real-estate property to claim the tax deductions, you don’t know the whole story. You can have your spouse/parent/siblings as co-owner and all the co-owners can claims the tax deductions of 1 lacs for principal and 1.5 lacs for interest part . So if you take a housing loan with your siblings as co-owner of property and co-Borrower of loan, the loan amount interest and principle paid will be available for tax exemption in ratio of your loan amount.
So if you are still a bachelor or a single who wants to buy a house, consider asking your brother, sister or parents to become the co-owner so that both of you can get tax benefits and reduce your tax-outgo. The only problem in this case is that loan-sanctioning companies are very stringent in giving loans to siblings, as their are higher chances of you parting your ways with them later in case of any family issues, however in case of spouse it happens lesser.
Bonus Tip : The co-owner who falls in the higher tax bracket should hold a higher proportion
of home loan to make sure that the tax benefits are maximised.
6. Use education loan to lower tax for your Children in Future
So what, if you have all the money to pay for your children’s education fees? It would be wise to opt for an education loan in name of your children’s name as you can claim the full interest paid on education loan under section 80E. Note that its only available if you are a parent or a legal guardian . You can’t claim deduction for your spouse education loan
The other thing is that you can take education loan on your children name so that after some years when they pay off their loans, they can claim the deductions themselves. Apart from this, they’d be more responsible and this education loan payment from their pocket will make sure that they don’t spend to much money in wrong places and you can use your money today some where else!
7. Take unlimited deductions for your second home loan interest payment
If you have already bought first home where you are living right now and want to buy another house, the good news is that you can claim full interest paid for the EMIs of second house. As per tax laws, you can claim full deductions for the amount paid as interest on loan for second house.
For the first house you can claim up to 1.5 lacs in interest, however for your second house you can claim full amount of interest without any upper limit! . Read some tips on buying real-estate
Which of the above tips were new for you ? Can you share any tip which you know but its not covered here ? Please comment
3 comments:
Since saving money is always a decision, you can always choose to maintain the ideal to normal relationship between income and expense. The simple principle is to spend less than what your income is.
I would like to know about the income tax benefits against the educational expenses bore for the unmarried sister. To be noted that father is a pensioner.
Thanks.
Vivek
Dear Manish ji,
I would like to know about the income tax deductions against the expenses bore for the education of the unmarried sister.
PS. Father is a pensioner.
Thanks.
Vivek
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