According to the law, every individual is allowed an income slab of up to Rs. 2,50,000 on which tax need not be paid. If your income goes above this level, you can use your family members to disperse your sources of income. In this way, the the income is distributed among more individuals and since each is allowed tax exemption slabs, you can save on the tax.

Filing Tax Returns Separately

If you are married, you and your spouse can file separate returns and you can show that each of you is earning separate income. There are various other strategies you can adopt to save on paying taxes.

  1. If your spouse is not earning an individual income, you can transfer some amount of your assets or income to him/her and invest this money in instruments that don’t incur tax or are tax deductible. For example in PPF or ELSS channels. There is no upper limit to the amount you can invest in your spouse’s name. It must be remembered that spouses cannot make gifts to each other under the law. If they do this, under Section 64, the incomes of both spouses will be clubbed together for tax purposes.
  2. You can invest a portion of your income in your spouse’s name in shares and equity mutual funds. These instruments don’t incur any taxes on the long-term gains but you must not liquidate the investment up to one year. Any interest you earn from these investments can be reinvested without incurring any taxes. Further, these reinvestments will be included in your spouse’s returns thus saving you tax.
  3. You can loan money to your spouse at a reasonable interest rates. Your spouse can invest this amount and the interest earned will be a part of your spouse’s individual income.
  4. You can transfer fixed assets like for example, a piece of property in your spouse’s name and show that the rental income is being received by him/her. You can also buy fixed assets in your spouse’s name.
  5. You and spouse can take a housing loan and save on income tax on the interest you pay towards it. You can also include the principal you pay off in the Rs. 1 lac tax exemption slab under Section 80C.
  6. If you are a Hindu, as soon as you’re married, you become a part of an HUF or Hindu Undivided Family. According to the law, you can make the HUF a separate legal entity that has a tax-exempt slab of its own. Any assets you transfer to the HUF become the property of the HUF. Thus, whatever income you earn on those assets are also attributed to the HUF. At the same time, you can maintain your own individual tax slab.

Buying Health Insurance

If you buy a health insurance plan that covers your entire family including your spouse and your kids, you can get a tax exemption of up to Rs. 15,000. But, if your parents are senior citizens and you include them in your health plan, the tax exemption can go up to Rs. 35,000. You will get this exemption even if your parents are financially independent of you. Additionally, if your wife is earning a separate income, she can buy a health plan for her parents and save on taxes.

Gifting to Your Parents

You can save on taxes by gifting a part of your income to your parents or to your parents-in-law. You will not incur any gift tax but you can save on the income tax you’ll have to pay. Any investments you make in their names will also help you make use of their tax exemption slabs. If your parents or in-laws are above 60 years of age, they are entitled to a tax exemption slab of Rs. 2.5 lac and if they are above 80 years, they can get an exemption up to Rs. 5 lac on their income.

Gifting to Your Adult Kids

You can also save on taxes by gifting your assets to your adult kids. For example, if you own any fixed deposit instruments, you can transfer them in your kids’ names. You will not incur any gift tax and and if your kids earn any income on these assets, they need not pay taxes on them. This is because these earnings will be a part of their individual tax exempt slabs. If however, you don’t want to gift your assets, you can loan the money to your kids without interest.

Setting up Trusts for Minor Kids

If you make any investments in the name of your minor kids, the income they earn from these investments will be included in your tax return. However, you can set up a beneficiary trust fund for your child with a specific clause. This clause should state that as long as the child is a minor, no income from the trust assets can be used for the child’s expenses.

Claiming Deduction for Child Education

If your kids are studying in any of the educational institutions in India, you can claim deductions on the tuition fees you’re paying. In this way, the tuition of up to 2 kids is deductible under the law. Further, if you have had to take loans for higher studies for any of your family members, you can add the interest you pay in the deductions list of your income tax return.

Check below for the Income Tax Slabs for the Financial Year 2015 to 2016:                           http://financeminister.in/latest-india-income-tax-slabs

For more information on saving tax, please read following informative articles:In this way, by planning your assets, and income, you can make use of the individual tax exempt brackets of all the members of your family and reduce the taxes you’re due to pay.

For more information on saving tax, please read following articles:

  1. http://www.rediff.com/money/slide-show/slide-show-1-perfin-use-your-family-to-save-income-tax-3-smart-tips/20100519.htm
  2. http://www.rediff.com/money/2008/mar/12tax.htm
  3. http://financeminister.in/latest-india-income-tax-slabs
  4. http://articles.economictimes.indiatimes.com/2014-01-24/news/46562979_1_basic-tax-exemption-tax-rebates-income-tax-act
  5. http://www.rediff.com/money/slide-show/slide-show-1-perfin-use-your-family-to-save-income-tax-3-smart-tips/20100519.htm#1
  6. http://www.rediff.com/money/slide-show/slide-show-1-perfin-use-your-family-to-save-income-tax-3-smart-tips/20100519.htm#3
  7. http://profit.ndtv.com/news/your-money/article-7-ways-salaried-individuals-can-save-taxes-326356
  8. http://businesstoday.intoday.in/story/investment-planning-tips-to-reduce-your-tax-burden/1/200917.html

To read more informative articles on income tax, please visit: Lending Chaupal Tax Resources