2024-03-14
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Income tax planning becomes crucial in order to achieve one’s financial goals, and while some find it tedious, it is imperative to understand the nuances involved, along with the various existing tax-saving instruments. According to the Income Tax Department, for the Assessment Year 2024-25, over 7.8 crore taxpayers filed income tax returns till 31st July, 2024, reflecting a steady increase in tax compliance and awareness. However, if one’s annual taxable income places them in a higher tax slab, they can consider unconventional methods to save tax. These new tax saving methods also provide good returns on investment, and help taxpayers achieve their financial and tax saving goals.
Filing ITR As Hindu Undivided Family (HUF)
Under the Hindu Law, a Hindu Undivided Family (HUF) consists of people who are lineal descendants of a common ancestor, and the family also includes their spouses and unmarried daughters. Furthermore, it is also possible to show income as a gift from a member of the family while filing taxes, and not pay tax on the said income.
House Rent Allowance (HRA) Deduction
Taxpayers who currently do not own a home, and stay with their parents can claim house Rent Allowance (HRA) on their income. To claim HRA deduction, one has to show that they pay rent to their parents every month, which can be done by either keeping a record of the banking transactions, or saving rent receipts.
Investing Through Parents Who Are Senior Citizens
Senior citizens enjoy additional tax breaks, as they can earn up to Rs. 3 lakh tax-free income. Thus, if a tax payer’s parents have low income to their credit, the taxpayer can divert their income from investments in their own way, whether it is through ELSS or other mutual funds. Thus, if one generates an interest income of Rs. 1 lakh, they can redirect it to their parents, instead of accumulating it to their taxable income for that particular financial year.
Furthermore, giving money to one’s parents is tax-free, and the amount can be invested in other schemes targeted towards senior citizens, such as the Senior Citizen FD, or Senior Citizens’ Saving Scheme. This not only reduces their tax burden, but also helps in building a corpus for their parent’s retirement, or earn higher gains for themselves.
Reinvesting Gains
Instead of opting for new tax-saving investments, taxpayers can use the amount from existing investments to reinvest in new tax saving methods. For instance, one can recycle their ELSS investments by reinvesting their money in another ELSS fund, or in a different tax-saving investment after the mandatory lock-in period of three years.
Paying Parents’ Insurance Premium
Under Section 80D of the Income Tax Act, 1961, taxpayers are eligible to claim a deduction up to Rs. 25,000 every financial year for health insurance premium instalments. It is also possible to add to the existing benefits by paying for one’s parents’ medical insurance premiums. If one’s parents are up to 60 years old, it is possible to claim an additional deduction of Rs. 25,000 while paying their premium. However, if one’s parents are above 60 years of age, they can claim up to Rs. 50,000 on their insurance premium payment.
Sukanya Samridhi Yojana
The Sukanya Samridhi Yojana scheme is targeted towards parents who wish to save for their daughter’s future, and offers attractive interest rates (higher than a PPF), and is capped at Rs. 1.5 lakh. Parents can open a scheme in private banks or in post offices as a savings account in the name of their daughter. Furthermore, the minimum investment amount is Rs. 1,000, and the girl should be less than 10 years old while opening the scheme.
Before opting for new tax saving methods, it is also important to choose a policy that aligns with one’s financial goals, savings horizon and risk appetite. For instance, the provides policyholders with the flexibility to modify the policy according to their needs. The policy offers guaranteed benefits that are payable on maturity, and provides life cover for the entire term, while the premium is only paid for a limited period. Furthermore, policyholders are also provided with the flexibility to choose a payment term that aligns with their payment horizon.
FAQ
Income tax in India is based on incremental slab rates. The rate of tax is higher on higher income. You can also avail deductions from your taxable income if you invest in eligible instruments like PPF, NPS, ELSS, ULIPs, etc. Starting AY 2020-21 you have two tax regimes – old and new. The old tax regime has all the deductions from gross total income, while the new tax regime offers a lower rate of tax. So, if you are not investing in tax-saving instruments you can file your tax as per the new tax regime.
You can avail additional tax savings under the following sections other than section 80C:
a) Section 80D: Health insurance premium payments for family and parents up to Rs 75,000
b) Section 80CCD(1B): Self-contribution to NPS Tier-I account above 10% of salary or 20% of income if self-employed up to Rs 50,000
c) Section 80E: Education loan interest paid through the year
d) Section 80EE: Home loan interest paid up to Rs 50,000
e) Section 80G: Charitable contributions to non-profit organisations registered under section 12A up to 50% or 100% of the contribution
f) Section 24B: Interest paid on home loan
You have many tax-saving investment options. You can consider the following popular tax-saving schemes to save tax:
a) Term life insurance plan
b) Health and critical illness insurance plan
c) Life insurance plans such as endowment and moneyback plans
d) Pension plans from life insurance companies
e) Public Provident Fund (PPF)
f) National Pension System Tier-I account (NPS)
g) Employee Provident Fund (EPF)
h) Unit Linked Insurance Plans (ULIPs)
i) Equity Linked Savings Scheme (ELSS)
j) Senior Citizen Savings Scheme
k) Sukanya Samriddhi Yojana
l) 5-Year Tax Saving Fixed Deposits
m) National Savings Certificate (NSC)
Deduction of Rs 1.5 or 2 Lakhs under section 80C is available when you make investments or spend money under the heads mentioned in the Chapter VI A of the Income Tax Act, 1961. All tax-saving investments like PPF, NPS, ULIP, ELSS, etc. and all tax-saving expenses like children’s tuition fees, and registration expenses of a house property are part of Chapter VI A.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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