I hope you and your family are doing okay. Though Lockdown has halted all Economic Activity, on the bright side, families are spending lots of time together. This lead many to realize that Maslow’s Hierarchy of needs is indeed outdated. To simplify, most people can do with basic amenities and still be happy. What if we add some ganache on the cake? How about we tell you 4 ways in which you can save on your Income Tax.
We figured that no one will mind some extra cash during times where businesses are struggling. So we dig our heels for you and are back with Tax Hack 106 for you. You’re Welcome!
Pay Rent to your Parents
If you live with your parents and happen to be a salaried individual, you can save on taxes by paying rent to your parents. With this measure, you will be able to reap the exemption benefits of the House Rent Allowance(HRA). If by chance you don’t receive any HRA, you can still claim a Deduction u/S 80GG. The USP here is that your parents can claim a flat 30% of the annual rent as a deduction for maintenance expenses. However, the property has to owned by your parents and you cannot be the co-owner of the property.
P.S. don’t worry if you are a novice with HRA Calculations, we got your back. We’ve built an HRA Calculator Tool to ease your burden.
Jointly Owned Property with Spouse
In case you are planning to buy some property, it is advisable to make your spouse a co-owner as it has multi-faced benefits. Not only you’ll enhance your loan eligibility but also enjoy tax benefits for interest on borrowed capital and the payment of the principal amount u/s 80C. Apart from that, you and your spouse could reap tax benefits on Capital Gains as well. If you and your spouse decide to buy a property from the capital gains within the mandated time, in that case, the taxable amount shall be reduced as per Section 54. Also if Rental Income accrues from the property, you and your spouse shall be taxed as per your respective stake in the property.
Invest Money in the name of your Parents.
If your parents happen to be in a lower Income Bracket than you, it could be a potential Tax Saving opportunity for you. In order to do so, one could gift a certain amount to your parents as this gifted amount will not attract any gift tax on their hand. One could then invest this money in the names of their parents in low-risk investment options like a Fixed Deposit. This measure makes a bit more sense if your parents are senior citizens. As generally Fixed Deposits tend to reap better interest rates for senior citizens as compared to younger people.
P.S. Did you know you can avail Tax Benefits while investing in FD? Learn more about it- Tax Saving FD(Fixed Deposit): Features and Eligibility
Set off Long Term Equity Losses
We have previously talked about Tax Loss Harvesting before. Tax Loss Harvesting is when an Individual set off his realized losses again realized profit, hence bringing the net taxable amount down. If you have a Long Term Equity Loss, and you still haven’t paid the Securities Transaction Tax(STT), don’t rush to pay it anytime soon. In such a scenario, you could still save some tax on it.
To do so, you must sell these shares at the market price and provide simultaneous delivery. Drumroll….Que in the family members. You could potentially sell the shares to a family member via a cheque at the incumbent market price. This will enable you to adjust the Long Term Equity Loss with Long Term Gains.
There we have it, another handful of tips to save on your Income Tax. If you found this blog informative and insightful, we have more Tax Hacks that might ignite interest. Do check them out.
Until Next time.