Tax planning and family finances: Tips to save tax and maximise profits

A saying goes – a family that eats together stays together. Here’s another – a family that plans taxes together saves together!

Tax planning is an important activity that many of you undertake to lower your tax liability and maximise profits. What if your family can help you save more?

Yes, it is possible. With the different tax benefits provided under the Income Tax Act of 1961, your family members can pitch in and help you save more tax. Thi way, you can invest more towards your short-term and long-term financial goals and grow your wealth.

Tax planning = tax saving = higher savings = more investments = wealth creation

A simple yet effective equation.

Now, let’s see how to start with tax planning and reach wealth creation with the help of your family.

Also read - How education loan can help you save tax

Tax planning tips for each family member

Discussed below are some effective tax-saving tips corresponding to each family member that you can use.

Earning couple
 

If both of you are earning, you must plan your taxes individually. Each of you can use the different income tax provisions to save tax. Some tips to maximise your tax benefits are as follows –

• If you take a home loan, apply jointly. Each of you would be able to claim a deduction on the principal repaid for the loan (under Section 80C), the interest paid (under Section 24(b)), and also on the stamp duty and registration charges paid for the property (under Section 80C)

• The same is true for an education loan taken for your children. The loan can be co-applied so that both of you can claim interest exemption under Section 80E on the loan taken

• If you co-own a property which is let out, you can create a Hindu Undivided Family (HUF). The rental income will become HUF’s income. You can use the income to make investments under the HUF’s name and claim deduction under Section 80C

• Have individual savings account for your needs rather than a joint one. This has two benefits. One, you can manage and track your income and expenses. Two, the interest earned from each account can be deducted from your independent taxable income. The deduction is available under Section 80TTA up to ₹ 10,000

Children 
 

Your children can also contribute to tax savings. Here’s how –

• The tuition fee for educating your child can be claimed as a deduction under Section 80C. The limit is ₹ 1.5 lakhs

• If you are taking an education loan for your child, claim the interest paid for the loan as a deduction under Section 80E of the Income Tax Act of 1961

• If you are buying a life insurance policy for your child, the premium paid can be claimed as a deduction under Section 80C up to ₹ 1.5 lakhs

• Deposit into Sukanya Samriddhi Yojana if you have a girl child. Plan for her future while saving taxes under Section 80C on the invested amount

Parents or in-laws
 

Here are some tips on how you can utilise the tax benefits available for senior citizens if your parents are 60 years and above –

• If your parents are receiving pension income, urge them to invest in avenues which allow deduction under Section 80C. Some of these tax-saving options are as follows –

- Equity Linked Saving Scheme (ELSS) of mutual funds

- Senior Citizen Saving Scheme (SCSS)

- Public Provident Fund (PPF)

•  5-year fixed deposit in a bank or post office, etc.

• If they choose fixed deposits, they can also earn a deduction on the interest income under Section 80TTB up to a limit of ₹ 50,000

• If your parents are not receiving any pension income, you can invest in a fixed deposit in their name. The investment can be treated as a gift you give your parents. This gift would be tax-free in their hands, but it will be a part of your taxable income. However, the tax benefit is on the interest income, which qualifies for tax deduction under Section 80TTB

• If your parents own the house you live in, pay rent to them. You can claim a deduction on the rent paid under Section 80GG. The deduction would be the lowest of the following –

- ₹ 60,000 per year

- 25% of your total adjusted income

- Rent paid – 10% of total adjusted income

For instance, say you pay a rent of ₹ 20,000 per month (₹ 2.4 lakhs in a year), and your total adjusted income is ₹ 10 lakhs in a financial year. In this case, the deduction would be calculated as follows –

• Buy a health insurance policy for your parents. The premium paid can be claimed as an additional deduction under Section 80D up to a maximum of ₹ 50,000

Maximising tax savings with IDFC FIRST Bank
 

Now that you know the tax-saving tips, the next step is to act on them. For this, IDFC FIRST Bank gives you the perfect avenue. Here’s how –

• Choose from a wide variety of savings accounts and enjoy interest up to 7% p.a. with monthly credits

• Invest in 5-year fixed deposits and get attractive rates

• Choose from a bouquet of tax-saving investment avenues like PPF, ELSS schemes, National Pension System (NPS), and more and invest online

Also read - Learn online ITR filing and how to pay income tax digitally

Tax planning to wealth creation – a holistic journey
 

Use your family members to help you in this journey to maximise profit and add more savings to your family budget. You will be amazed at the taxes you can save with some simple tax-saving tips. Why evade when you can save?

Take your pick from these tips or use them all. It really depends on how well you can plan your taxes. Choose suitable investment avenues based on your short-term and long-term goals and invest online with IDFC FIRST Bank. Happy tax planning!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.