India offers numerous ways to save on income tax, some of which are less commonly known but can make a significant difference to your savings. Here are a few unusual and effective ways you might consider:
1. Rent Paid to Parents (HRA Exemption)
If you live with your parents, you can claim House Rent Allowance (HRA) by paying rent to them. Your parents need to declare this rental income in their tax returns, but this can be beneficial if they fall into a lower tax bracket or are exempt from taxes. This way, the family as a whole ends up saving more, effectively optimizing your tax outgo.
2. Setting up a Hindu Undivided Family (HUF) Account
If you belong to a Hindu family, forming an HUF can help you save taxes by splitting income among members. An HUF is treated as a separate entity for tax purposes, meaning it can claim basic exemptions and deductions independently. This strategy is especially useful for families with multiple income sources, as it helps distribute tax liability effectively.
3. Interest on Savings for Senior Citizens (Section 80TTB)
For senior citizens, interest income from bank or post office savings accounts can be claimed as a deduction under Section 80TTB, up to a limit of ₹50,000 per financial year. This is particularly advantageous for retired individuals who rely on interest income to meet their day-to-day expenses, ensuring they keep more of their savings.
4. Notional Rent on a Second Property
If you own more than one residential property, the government considers any additional house as rented out and taxes a notional rent on it. To minimize this tax, consider keeping only one residential property in your name and transferring ownership of additional properties to family members who may have lower tax liabilities. This approach can help reduce the financial burden of owning multiple properties.
5. National Pension System (NPS) Additional Deduction (Section 80CCD(1B))
Most people are aware of deductions under Section 80C, but investing in the National Pension System (NPS) allows you to save an additional ₹50,000 under Section 80CCD(1B). This lesser-known option enables you to expand your tax-saving investments beyond the usual ₹1.5 lakh cap, providing a more secure financial future.
6. Tuition Fees for Up to Two Children
Section 80C also allows deductions on tuition fees paid for up to two children. This is a valuable benefit often overlooked by taxpayers. Families with school-going children can use this provision to reduce their taxable income while planning for their children’s education.
7. Medical Insurance for Extended Family (Section 80D)
If you’re paying for medical insurance for your parents or even your in-laws, you can claim deductions under Section 80D. If your parents are above 60 years of age, you can claim an additional deduction of up to ₹50,000, significantly reducing your taxable income while securing the health of your extended family.
Conclusion
These unusual approaches to saving income tax may require careful financial planning and sometimes even coordination within the family, but they offer excellent opportunities to reduce tax liabilities in legal and strategic ways. Whether through optimizing HRA claims, leveraging HUF accounts, or maximizing deductions for senior citizens, these strategies are worth considering for the upcoming financial year.