Taxpayers under the old tax regime are keenly focused on saving taxes. What many don’t realize is that including their spouse and children in their tax planning can enable them to reduce their tax burden legally.
According to reports, a person can reduce their taxes by loaning money to their spouse. For example, if a husband loans money to his wife to open a nail spa, and she agrees to repay it with interest, the money she makes from the business doesn’t get clubbed with the husband’s income for tax purposes.
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Along with this, as per the Indian Income Tax Act, gifts are tax-free. But if one invests the money received as a gift somewhere and earns income from it, then the clubbing rule applies to it, which is described in Section 64 of the Income Tax Act. When the clubbing rule applies, the income earned from the investment of the gift amount is also added to the income of the person giving the gift.
For example, if a person gifted Rs 6,00,000 to his wife. Later, his wife made an FD of the same amount. This FD earned interest of Rs 5,000 per annum. Since Lokesh has transferred cash (asset) without any adequate consideration and it has been converted into some other asset by his wife, the interest of Rs 5,000 earned from the converted asset, FD, will be added to the income of Lokesh as per Section 64(1)(iv) of the Income Tax Act.
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How Can Your Spouse Help You Save On Tax?
1) Equity Investments:
Under Section 112A, a tax exemption of up to Rs. 1 lakh can be claimed each year on long-term capital gains from equity shares or equity-specific units of schemes if the Security Transaction Tax (STT) has been paid.
2) Health Insurance Policy:
Under Section 80D, an individual and HUF can claim a deduction of up to Rs. 25,000 for health insurance premiums. If the cost of health insurance is higher than this limit.
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3) Educational Expenses of Children:
A deduction of up to Rs. 1.5 lakh can be claimed under Section 80C for expenses incurred towards the education of two children. If there are more than two children or if the education expenses are more than Rs. 1.5 lakh.
4) Leave Travel Allowance (LTA)
If both spouses are employed, they can claim a deduction for a total of four journeys for four years under the LTA instead of two.
