The Income-Tax Act offers many smart ways to minimise the tax burden. These are not loopholes but legal provisions, which can be used by the tax payer. There are plenty of clauses in the Income-Tax Act which can be used to save on tax, which a normal tax payer is not aware of. Few tax payers take advantage of the provisions for their advantage.The measures prescribed here are not loopholes and do not in any way suggest anything, which is out of the book.
INDEXATION BENEFITS
Indexation is a simple yet an effective step by which tax liability on investment can be reduced by utilising the rate of inflation. This works on investments in bonds or mutual funds.
The basic principle is that the investment you make in a product should be linked to the inflation rate. If the inflation rate is high, that should get counteracted from investment income. It should be remembered that the tax liability can increase if A smart mode to save yourself some tax is to make investments in the name of your spouse, who is dependent on you. The investments made in the name of spouse is liable for tax for the first year. If income from the investment is reinvested, it is exempt from tax.
Your kid at the age of 18 is considered a major. If your teenage son or daughter is turning 18 in the financial year, you can invest money in his name or gift him any amount.
This kind of transfer i legal and can save a lot o taxes for you. The incom that is earned from th assets gifted to children that are minors are treated as independent income and the liability of taxes is reduced to that extent.
PENDING PREMIUMS
Your tax-saving schemes on which you have stopped paying premiums can help.
The pending premiums can be paid as a lump sum provided your policy is still live. The sum paid as the premium can be claimed under tax benefits in the financial year.
A tax saving policy in which you pay premium is tax-deductible and even the policy in which the premiums are due can be claimed as tax deduction in the year of payment.
HINDU UNDIVIDED FAMILY
You have the option to increase the I-T limit by setting up a Hindu Undivided Family (HUF).
HUF is considered as a separate entity under the income-tax law. A basic exemption limit of Rs 1.8 lakh is available for HUF apart from tax deduction under Section 80C up to the extent of Rs 1 lakh per year.
A separate tax deduction of Rs 1.5 lakh on the interest on the residential loan is also available for the Hindu Undivided Family .
FOR SENIOR CITIZENS
The help of senior citizens in shielding from taxes can be utilised for the advantage of the taxpayers. Investing in the name of senior citizens can save taxes; even the rate of returns on such investment is high. The amount invested in the name of your parents that fall under senior citizen category can bring your tax rate down. For example, you can buy medical insurance in the name of your parents, the premium paid can be availed under Section 80D.
CLAIM HRA ON PROPERTY IN PARENTS' NAME
House rent allowance (HRA) can be claimed if a person lives in his parents' house. The tax-payer should in such a case pay the rent to his parents.
This then can be claimed under the provision for house rent allowance.
If the property is in the joint name of both parents, the house rent can be divided between the parents.
A person's savings depends on how smartly he invests. Smart investing means knowledge of the Income-Tax Act and its benefits and application of such knowledge.
This is not rocket science, the provisions are available. You have to abide the law and take advantage of what has been offered to you by policymakers.
Adhil Shetty is CEO of BankBazaar .com