Save Tax with the Help of your Family

Family members can be extremely instrumental in providing you financial benefits. In context with the income tax, a certain part of your money can be associated with your family members which could help you save tax. In this article we discuss some of the methods that help us save taxes.

Methods to Save Tax

Invest in the name of parents

This method is applicable to people whose parents fall under the non-taxable or lower tax bracket. It is possible to invest money under their names in the form of gifting them the money. This amount will not be taxable as monetary gifts to specified relatives are not taxed. It is possible to invest this money under FDs, in the senior citizens savings scheme, etc. Senior citizens are have tax exemptions of up to INR 50,000 on interest income from saving or fixed deposits in any bank, post office or co-operative bank.

The taxpayer can receive benefit u/s 80TTB for savings or fixed deposits and will be able to save up to INR 50,000 to INR 2,50,000 depending on parents’ income, and in addition, also INR 50,000 from the interest income.

Pay rent to parents

Receiving income from salary and living with your parents provides you an opportunity to save tax. The house should be owned by your parents and should not be co-owned by you. In this case, you can pay them rent and claim it under HRA. Your parents can claim a deduction of 30% of the annual rent for repairs and maintenance under section 24. This benefit is receivable under section 10(13A). In this case, you will be able to save the least of the following three:

  • Actual rent payable minus 10% basic salary
  • Total HRA that the employer provides
  • 40-50% of basic salary depending on residential conditions

Buy Health Insurance

It is possible to purchase health insurance for your parents who are above the age of 60 and claim deduction of up to INR 50,000 for the premium payable. Taxpayers can claim this benefit u/s 80D.

Joint Home Loan

A husband and a wife who are co-owners and co-borrowers of a self-occupied property, each can claim tax benefit on interest and principal payable for a home loan. Taxpayers can claim exemption u/s 80C in such situations. There is a possibility to save up to INR 7,00,000 depending on the amount of home loan.

Providing a Loan

Gifting money to your wife and investing the same amount will be clubbed with your income and taxed, unless you choose a tax free instrument such as the PPF. It would be better to provide a loan to your partner who was low or no income at a reasonable rate of interest. Though the interest will be added to your income and taxed, you will be able to save if she invests in an instrument with a higher rate of return.

Education Loan

Taking an education loan for higher studies will yield in the taxpayer receiving tax benefit on repayment of interest for up to 8 years starting from the year in which interest payment begins. Furthermore, the loan has to be from a financial institution such as a bank approved by the government. Taxpayers can save tax u/s 80E in this situation.

Invest for ward in PPF, mutual fund, ULIP

You can invest under your ward’s name as investment in certain mutual funds, ULIPs and traditional insurance plans are entitled to tax benefit u/s 80C. The income will be taxable. To avoid this, you can invest in tax free investments such as PPF. It is also possible to invest under equity mutual funds as there is no tax if the gain is less than INR 1,00,000 a year.

Pay tuition fee, education allowance or hostel accommodation fee

The is only applicable if the taxpayer has not completely used up section 80C deduction limit. This method can include the payable tuition fee for a maximum of two children every year. Salaried employees can claim an exemption of INR 100 every month per child up to two kids as children’s allowance. They can also claim INR 300 per child as hostel expenditure allowance.

Deduction for dependent with disability

If a taxpayer has a family member with a disability or a specific disease that requires huge medical expenses or maintenance, then, they can receive a tax benefit on the expenses they incur. They can claim a deduction under section 80DDB.

Invest under the name of adult children

If your child is above the age of 18, he/she will have to pay their taxes on the income they earn. Therefore, clubbing income rules will not be applicable to their situation anymore. Hence, if they fall under the tax exempt category, you can gift them money. The money you gift them can be invested in tax-free instruments, and the income earned will be tax free.

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FAQs

What is the limit for deduction under section 80C?

The maximum limit for deduction under section 80C is INR 1,50,000.

Can I claim deduction u/s 80E if my father has paid the loan?

No, you can not claim deduction u/s 80E. However, your father can claim a deduction u/s 80E. Because relative includes children of an individual.

Can I claim Chapter VIA deductions under the New Tax Regime?

With the majority of income tax deductions slashed in the New Tax Regime, some Deductions are still claimable.
– Rebate u/s 87A
– Standard Deduction on Rent Received
– Agricultural Income
– Life Insurance Income to Beneficiary
– Retrenchment Compensation
– Voluntary Retirement Scheme
– Leave Entrenchment on Retirement

Got Questions? Ask Away!

  1. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

  3. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.

  5. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

  6. Hello,

    Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?

    There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?

    I couldn’t find anything on this. Any help is appreciated.

  7. Hello @Veejayy,

    Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.

    Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.

    These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!

    Also, interest earned on these bonds will be taxable.

    Hope this helps!

  8. Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total

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