You always thought 80C was the only way to save tax? You need to read this article. Read on and find out how to axe those taxes.
Calculating and planning your taxes is not very easy. Sometimes, you might need the help of a chartered accountant to calculate income tax. One of the most popular sections used to save taxes is Section 80C. Exhausted the Section 80C investment limit of Rs. 1.5 lakh?
Don’t fret! There are plenty of other ways to save taxes apart from the most popular Sec.80C. Already know how to save taxes using your Home Loan? Don’t worry. We aren’t talking about that here. Read on to find out the options you have.
80 GGC – Contribution To Political Parties
Individuals can receive tax deductions on their donations to an electoral trust or any political party registered under Section 29 A of the Representation of People Act, 1951. Payments can only be made through legal channels such as cheques and net banking. Payments made using cash or in kind, will not qualify for tax deductions.
An individual can donate up to 10% of their gross earnings for the year to claim tax deductions under Section 80 GGC. These deductions are available to salaried individuals who don’t have an alternative source of income such as a business. Deductions claimed will not be applicable to TDS deducted from the individual’s salary.
You should use this option if you’re genuinely interested in donating to a political cause and not because you’re looking to evade taxes. There are registered political parties around the country that are fronts for money-laundering operations where your donation might not be used right. With a country-wide crackdown on tax evasion and black money in progress, you would do well to use 80GGC only to make legitimate donations.
Additional Reading: Your Income Tax Exemption Guide For The Financial Year 2018-19
80 G – Donations To Social Causes
If you’re the charitable kind and want to give your money to social causes you support, you can get tax incentives. You can claim the whole or part of your donations as tax deductions under Section 80G. There are charities towards which 100% of your donations are tax-deductible while donations to other charities are subject to terms and conditions.
For example, donations made to such funds as National Defence Fund, Prime Minister’s National Relief Fund, The National Foundation for Communal Harmony, etc. allow you to claim 100% deductions with no limit. But donations made to funds such as the Prime Minister’s Drought Relief Fund allow you to claim 50% tax deduction with no limit.
There are also funds or charities where you can pay up to 10% of your adjusted gross income to claim 100% deductions (for example, a government-promoted organisation for family planning) or 50% deductions (for example, a corporation promoting the interests of minorities.)
Forming A HUF
You are a resident individual, you have the option of being part of a HUF – Hindu Undivided Family. It is an option for people with high income or multiple sources of income who are seeking to save taxes. A HUF is an independent financial entity that can be formed between lineal ascendants and descendants of Hindu, Jain, Sikh, or Buddhist family members.
A HUF has its own PAN and bank account and is typically headed by the senior-most member of the family. He is the ‘Karta’ – the person overseeing the family’s matters. An HUF’s collective income is taxed separately and not clubbed with the individual incomes of its members. For example, you and your wife each earn a salary of Rs. 15 lakhs from your respective jobs, and you also earn Rs. 5 lakhs as rent from your ancestral property. This rental income in the hands of you or your wife would be taxed as per the prevailing tax slab of 30%.
But if you have formed a HUF and allowed it to claim rent on your family’s behalf, the rental income would be taxed at only 10%. Also, any gift received by the HUF from its members will not be subject to taxes.
Transferring Money To Spouse
Money received from one’s spouse is tax-free. Though the income generated by this gift can be taxed, this method can be used to decrease long-term tax incidence. Let’s assume you transfer Rs. 1,00,000 to your wife, who makes a Fixed Deposit and earns Rs. 8000 in a year. The transfer is tax-free; the interest earned isn’t. Assuming that your wife has not generated any other income for the year, this income of Rs. 8,000 is taxable not in her hands but in yours. This interest income will be clubbed with your income for the year and taxed as per your slab.
However, in the following year, any income generated from this Rs. 8,000 is taxable in your wife’s hands. This reduces your tax incidence in the following years since you have fewer income-generating assets.
Give Money To Your Senior Citizen Parents
The elderly are entitled to special tax and investing benefits. For example, senior citizens (between ages 60 and 80) are entitled to the exempted income of Rs. 3,00,000 as opposed to Rs. 2,50,000 for regular taxpayers. For super senior citizens, the exemption limit is Rs. 5,00,000. Your parents can receive income from you. The transfer of money among lineal ascendants and descendants is tax-free. The money can be invested in special schemes such as the Senior Citizens’ Savings Scheme (currently earning 8.5% PA) that earn higher returns than schemes for the general public (such as the PPF, which earns 8%).
By giving money to your parents who may have lower tax liabilities than you, you can achieve a higher degree of tax efficiency when it comes to saving tax on your collective investments.
Living In Parent’s House? Claim HRA Deductions
You can claim HRA deductions if you stay in an accommodation that isn’t yours. Even if you’re staying in a home owned by your parents, you can pay rent and claim tax deductions. This needs to be managed in an efficient way that increases your tax savings without increasing your parents’ tax liabilities too much.
Additional Reading: How To Calculate Your HRA
There’s still time left until 31st March so you can consider some of these options to reduce your tax liabilities and also feel good about donating to causes you feel strongly about. Still think you can save more tax with a Home Loan? Of course, you can. To be precise, you can save up to Rs. 4 lakh in taxes using your Home Loan. What are you waiting for?