Income Tax: Here’re the ways in which your Parents, Wife and Children can help you Save Tax

Income Tax - Parents - Wife - Children - Save Tax - Taxscan

When it comes to your income taxes, certain money heads can be associated with specific family members in a way that gets you tax breaks.  Your family members can prove instrumental in providing you financial benefits.

Paying taxes on our hard-earned money is a pain. People often keep looking for ideas to help them save on taxes. While there are many instruments through which one can save taxes like investments in life insurance, Public provident fund, superannuation fund, Mutual Funds SIP and more, some of these may not yield a good return.

Who does not like to avail the legalised opportunity when it comes to tax saving, Section 80C is among the popular go-to avenues to avail exemption on investments. If you have exhausted all options in your personal capacity, then your parents, children and spouse can help you reduce your tax liability.

Let’s look at some of the ways in which your dependents can help you save taxes.

  1. Purchase Health insurance for your parents, wife and children

Health insurance is a necessity that can also help you save taxes. Generally, you can save tax on health insurance premium for a maximum of Rs 1 lakh in case you and your parents are above the age of 60 years.

Under section 80D of the Income tax act, a deduction can be claimed for health insurance premiums including preventive healthcare check-up costs for yourself, spouse and your children.

Further, if you buy health insurance for your parents, you can get an additional deduction from your income if your parents are senior citizens. This way you can get tax-saving deduction benefits up to Rs.75,000.

  • Dependents with disease or disability

The deduction under section 80DD of the income tax act is allowed to Resident Individuals or HUFs for a dependant-who is differently abled and is wholly dependent on the individual (or HUF) for support and maintenance.

However, it is subject to various conditions namely deduction is allowed for a dependent of the taxpayer and not the taxpayer himself. The taxpayer is not allowed this deduction if the dependent has claimed a deduction under section 80U for himself/herself. Dependent in the case of an individual taxpayer means spouse, children, parents, brothers & sisters of the taxpayer. In case of a HUF means a member of the HUF. The taxpayer has incurred expenses for medical treatment (including nursing), training & rehabilitation of the differently abled dependant or the taxpayer may have deposited in a scheme of LIC or another insurer for maintenance of the dependant. Disability of the dependent is not less than 40%. Disability is as defined under section 2(i) of the Persons of Disabilities Act, 1995.

When the conditions are met, the amount of deduction allowed is Rs 75,000 (Starting from the financial year 2015-16) where disability is more than 40% and less than 80%. Rs 1,25,000 (Starting from the financial year 2015-16) where disability is more than 80%. These deductions are allowed irrespective of your actual expenditure.

  • Paying rent to your parents

By submitting rent receipts and paying it, you will be able to claim exemption on House Rent Allowance (HRA). Your parents can deduct property taxes and also claim 30% standard deduction on the rental income. If they are in a lower tax bracket than you, the family can save tax as a whole. If they are more than 60 years old, they will also enjoy a higher minimum income exemption limit (Rs.3 lakh for those who are aged above 60 years old and Rs.5 lakh for those who are aged above 80 years old). In case they do not have any taxable income, you will be able to save significant tax as a family.

For example, 22-year-old Prashant lived in Dwarka, New Delhi with his parents. His office was in Gurgaon and he commuted daily to his office from Dwarka. Aditya had recently started working, and his employer asked for tax saving declarations for FY 2018-19 to calculate TDS on salary. Prashant’s colleagues who lived in Gurgaon in PG accommodation were submitting rent receipts to claim HRA. HRA is paid to them as part of their salary. Prashant can claim HRA by paying the rent to his parents. However, rent paid to Prashant’s father will have to be included in his father’s total income.

  • Paying Tuition Fee for your Children

A parent can claim a deduction on the amount paid as tuition fees to a university, college, school or any other educational institution. Other components of fees like development fees and transport fees are not eligible for deduction under Section 80C.

The maximum deduction on payments made towards tuition fee can be claimed for up to Rs 1.5 lakh together with the deduction with respect to insurance, provident fund, pension etc. in a financial year.

  • Education Loan

An education loan helps you not only finance your foreign studies but it can save you a lot of tax as well. If you have taken an education loan and are repaying the same, then the interest paid on that education loan is allowed as a deduction from the total income under Section 80E. However, the deduction is provided only for the interest part of the EMI.

Only an individual can claim this deduction. It is not available to HUF or any other kind of taxpayer. The loan should be taken for the higher education of self, spouse or children or for a student for whom the individual is a legal guardian. Parents can easily claim this deduction for the loan taken for the higher studies of their children.

  • Purchase property with spouse

Purchasing a joint property with your spouse attracts income tax advantages. Your loan eligibility automatically increases when your spouse becomes co-owner of your property. It resultantly extends the tax benefits for both wife and husband for the interest on the capital that has been borrowed. However, the husband and wife both cannot claim the same amount; hence they have to split the same. The similar is the case with rent of the property that is co-owned, it is taxable for both husband and wife but in the same ratio in which the property is co-owned between them. If your spouse and you have not mentioned the share in the property, then the share is divided equally for taxation to provide better efficiency to average the slabs of tax.

  • Invest money in the name of your parents

If your parents fall in the non-taxable or lower tax bracket, invest in their names by gifting them money. Monetary gifts to specific relatives are not taxable. The sum can be invested in a range of options such as the Senior Citizens’ Saving Scheme, post office or other tax-saving schemes and even the popular bank FDs. Senior citizens are allowed tax exemption of up to Rs 50,000 on interest income from saving or fixed deposits in any bank, post office or cooperative, vs the Rs 10,000 for non-senior citizens. Even if interest exceeds the exemption limit, their tax liability will still be much lower than yours. Note that the tax-exempt limit for citizens below 60 years is Rs 2.5 lakh, but for senior citizens above 60 years, it is Rs 3 lakh, and for senior citizens above 80 years, it is Rs 5 lakh.

Case Laws

  1. The ITAT in the case of Shri Krishnappa Jayaramaiah v. Income Tax Officer held that  the amount invested in purchase of house in daughter’s name is eligible for exemption under section 54F.
  2. In the case of CIT Vs. Natarajan wherein it was held that the assessee has purchased a property in the name of his wife, the Court held that the assessee will be eligible for exemption u/s. 54F of the Act.

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