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Use your family to save income tax. 3 smart tips
One of the most effective methods of lowering the incidence of income tax is by means of legal transfer of your sources of income among as many family members as possible, so that each family member enjoys the basic personal income tax exemption limits.
Use your marriage for tax planning
Married taxpayers can make a substantial saving of income tax by setting up two separate independent income tax files, one each for the husband and the wife.
If your wife prior to her marriage was already assessed for income tax, then she may continue to file her income tax return in the same income tax ward/circle where she was assessed. Your wife's Permanent Account Number would also continue to be the same though her surname would change after marriage as also her residential address.
After marriage all that is needed for a separate income tax return for your wife is to file the income tax return with her new surname and new address. If your wife desires, she can continue to file the income tax return mentioning her old address (before marriage).
Due to marriage if the town changes, then she can file the income tax return in the new town according to the new jurisdiction which would be on the basis of residential address.
Thus, as a result of marriage one should plan a separate income-tax file of the wife. However, care should be taken to ensure that no direct gift or transfer from husband is made to the wife.
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Use your family to save income tax. 3 smart tips
Your adult children are your great tax savers
All your adult children are as solid as a rock to help you save your income tax. After October 1, 1998, the provisions relating to gift-tax have ceased to exist.
Now you are free to gift away your money to your children without attracting gift tax. This amendment makes it a good idea to make liberal gifts to your major children so that the income, if any, arising from these investments in years to come can be taxed in the hands of your children.
For example, if you have fixed deposits let us say of Rs 20 lakh (Rs 2 million) and you have a son and a daughter, who are not minors, then it makes sense to gift away Rs 500,000 to each of them. After receiving the gift amount the children also make investment in bank fixed deposit and each of them receives yearly interest of say, Rs 45,000.
On this amount the son as well as the daughter will not pay income tax because the amount is below the exemption limit. In this manner, your children can now be great source of tax saving for you.
Thus, a person making a gift to children can enjoy the benefit of lower income tax incidence in the family. If, however, due to some reasons you do not feel inclined to make huge gifts to your major children, then you may give interest-free loans to your adult children so as to legally reduce your taxable income.
It is lawful to grant interest-free loans to adult children from your own funds.
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Use your family to save income tax. 3 smart tips
Your parents and in-laws can save more taxes for you
It might sound incredible to most readers but the fact is that your own parents as well as your own in-laws can become legal tools of tax planning for you and your family.
If you want to achieve this dictum then all you are need to do is just to give away a portion of your funds, either as a gift or a loan, to your parents as well as your parents in law so that in years to follow your income tax burden becomes lighter as the income on funds transferred by you to them which would bring in income would be taxed in their hands.
With the increase in the limit of exempted income for individuals, women tax payers and senior citizens, it is now a great time for having separate income tax files for all family members.
(Excerpted from the book, How to Save Income Tax through Tax Planning. Published by Vision Books.)
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