YOUR FAMILY CAN HELP YOU SAVE TAXES – HERE’S HOW

This is time of the year when we are scurrying to put together our investment proofs and tax savings documents. You family can help you save taxes too, let’s find out how.

Health insurance – The pressures of modern living have put our health at greater risk. While most employees have a medical insurance cover from their employer, it usually only covers hospitalization. Buying a medical insurance cover for your spouse, children and parents to cover common ailments has tax benefits too. For you and your spouse & children a deduction of Rs 25,000 and for parents an additional Rs 30,000 can be claimed under section 80D. You can also avail tax benefits under section 80D if you purchase a term insurance plan with a critical illness benefit. Do remember to pay the annual premium at this time, so you can claim the entire amount as deduction in your tax return.  

Medical check-ups – Included in the amount for deduction under section 80D is health check-ups for your family.  If you do not want to go for medical insurance, getting a preventive health check-up done for your family will help you save taxes. Several hospitals and clinics offer preventive health check-up packages. A maximum of Rs 5,000 can be claimed for you, your spouse’s and your children’s health check-up. Rs 5,000 can also be claimed for health check-up of your parents. These amounts however are within the overall limit of section 80D. You can get both medical insurance as well as preventive health checkup but the total deduction cannot exceed the amounts specified above.

Life insurance premium – Buying a life cover for you & your family can save you taxes. The premium paid is allowed as a deduction under section 80C. The policy must be in the taxpayer’s or spouse’s or any child’s name (the child may be dependent/independent, male/female, minor/major, or married/unmarried). A maximum of Rs 1,50,000 can be claimed under section 80C. If you intend you purchase a life insurance policy do check the premium commitments, terms and the cover in detail. You’ll have to pay the premium over a number of years and do not make the decision in haste to save taxes.

Rent on accommodation – If you are living with your parents, you can pay them rent and save tax on HRA. Enter in to a rent agreement with your parents and pay them the monthly rent. Your parents will include this rental income in their tax return. If the house is jointly owned they can split the income in the ratio of their ownership. If they are in a lower tax bracket or do not have taxable income, as a family you’ll end up saving tax. For parents who are more than 60 years old the exemption limit is Rs 3,00,000 and for parents older than 80 years, the exemption limit is Rs 5,00,000. So if they this rental income keeps them under the exemption limit, you’ll have greater tax benefits The rental income earned by them can be further invested in Tax Saving Plans free instruments such as ELSS or senior citizen’s savings scheme or fixed deposits.

Tuition Fees – Any sum paid as tuition fees (excluding payment towards development fees/donation/similar nature payment) to any university/college/educational institution in India for full time education of any two of your children, is deductible under section 80C. This is an expense that you have already incurred and you can claim it in your return and save tax. A maximum of Rs 1,50,000 can be claimed under section 80C.

Your family can help you save tax on your hard earned money.

Save a Month’s Salary in Taxes

It is the last quarter of the financial year, and hence the ideal time for tax planning if you haven’t done it already.

At this juncture, it is important to keep in mind that your annual package is directly proportionate to your tax liability, meaning, as your income increases, your tax liability increases as well.

The annual tax liability of an individual is almost equal to one month’s salary. However, even after the basic deductions, such as EPF and HRA, at the employer’s end, you end up sharing a substantial percentage of your salary with the taxman.

For instance, an individual with a take-home salary of Rs.50,000 a month accrues an annual tax liability of Rs.46500 which is almost equal to the take-home amount.

Depending on your tax slab, you can save up to Rs.45,000 in income tax by claiming deductions under Section 80C and up to Rs.4,500  by the means of claiming deductions under Section 80D.

Investing in the following instruments can help you claim deductions with accordance to Section 80C and Section 80D of the income-tax act and eventually, legally save tax:

Term Plans

Term plans require a higher level of commitment and offer modest returns; this is why term plans are not considered as good means of saving on taxes.

A term insurance plan requires you to pay premiums for a definite period of time and provides risk coverage.

If the insured person expires during the policy term, the beneficiary is entitled to the insured sum, but, if the person survives the policy cover period, then survival benefits are not given to the beneficiary. Hence, this product does not interest buyers.

However, from a tax-saving perspective, all insurance plans are equal before the law. Therefore, irrespective of the kind of life insurance plan, you get equal tax benefits.

As life insurance falls under EEE (i.e. Exemp-Exempt-Exemp) category, both, the premium paid as well the sum assured is exempt from income tax.

For instance, if a non-smoker starts at an age of 25, then paying nearly Rs.15,000 per annum can get him a sum assured of nearly Rs.3 crores.

The amount of Rs. 15000 that you pay towards premiums will be treated as a deduction from your taxable income, while the sum assured will be a totally tax-free income.

Health Insurance

You can claim for tax deductions against the money spent for medical expenses for self or a dependent family member.

An individual can claim maximum deduction of Rs. 30,000 u/s 80D. This deduction includes Rs.15,000 for himself and family and the rest Rs.15,000 for parents.

However, if the parents are senior citizens the deduction allowable for them is Rs. 20000. This benefit is available over and above the deductions of Rs. 1.5 lacs under Section 80C.

For example, if an individual with a package of Rs.10 to 15 lacs per annum invests about Rs.7,000 per annum towards a health insurance plan, then he can get a sum assured of Rs.10 lacs. This premium of Rs.7,000 can be treated as a deduction from the taxable income.

There are 4 kinds of health insurance plans that you can choose from. This includes medical insurance plan, hospitalization plan, super top-up plan and critical illness plan.

Child Plans

It is not necessary to start planning for your child after you have one. You can start saving and investing as soon as you get married.

As we are already aware, the cost of education is growing much faster than inflation. Fee for higher education is not what it used to be about 15 to 20 years ago.

Pursuing a master’s degree from a leading management school now a days costs you around 14 to 15 lacs or may be higher.

Hence, to avoid financial crises in future, it is imperative for parents to start saving for our children’s secure future as early as possible.

Along with securing your child’s career and future, these plans save you a substantial amount of tax as well. They not only allow you to claim deductions in the year of investment but also ensure a tax-free return to your child in future.

For example, if an individual buys a child plan as soon as his child is born, and pays approximately Rs.72,000 per annum for 20 years, then his child would get a sum assured of Rs.30,00,000 lacs post maturity.

However, both the premium and the sum assured will be tax-free only if the annual premium is less than 10 % of the total sum assured.

I the annual premiums exceed 10 % of the sum assured, then the premium only up to that limit will be exempt and the entire sum assure will be taxable under the head ‘income from other sources’.

Retirement Plans

It is wise to start planning for your retirement as soon as you start earning; because later you start the more you pay towards premiums, which can make it difficult for you to set aside a sufficient corpus for the golden years of your life.

The income tax act states that any amount paid to keep a retirement policy in force is eligible to be claimed as a deduction under section 80C.

Therefore, the entire amount paid by you, inclusive of service tax and any other charges if collected by the insurer, can be deducted from your taxable income.

Amount that can comfortably fulfill of your current requirements will not be sufficient meet your requirements when you turn 65; reason being, the rising cost of living and the shooting inflation rate.

Hence, it is imperative for you to save for your calm future.

NOTE: Pension plans offered by insurance companies give you similar Tax Saving Plans benefits as retirement schemes by mutual fund companies.

You can claim a deduction of up to Rs.1 lac from the amount of premium paid towards a pension plan under Section 80CCC of the Income Tax Act. While, one-third of the maturity amount withdrawn will also be tax free.