Income Tax Hacks You Didn’t Know and Can Use

Just like pleasant weather soothes everybody and a pleasant smile attracts everyone, pleasant tax planning saves you money. Today we will look out for some easy tax-saving hacks that we can use.

Smart Tax Saving Hacks for Individuals

Almost everybody is aware of certain exemptions and deductions available for tax savings, but most individuals are not aware of many others. Let’s look at them:

  • 80C Deduction: When it comes to tax-saving tools, the 80C deduction is the most prominent one. You may only think about DSOPF / PPF for the total Rs 1.5 lakh deduction provided under this section. But principal part of your home loan, children’s tuition fees, insurance policy premium, NPS contribution, Tax saving mutual funds, and tax saving FDs are also covered under 80C, subject to their particular terms and conditions.
    Interest payment on a home loan: If you have taken a home loan, then you can avail of the tax exemption on interest of up to Rs. 2 lakhs in a financial year under Section 24(b) while the excess interest gets carried forward.
  • Investment in NPS: If you are contributing towards NPS, then you can avail of an additional deduction of Rs. 50,000 under Sec 80CCD (1B) over and above the deduction provided under Sec 80C.
  • Investment in homemaker spouse’s name: The money given to a homemaker for his/her personal expenses (a reasonable amount, not defined anywhere) doesn’t come under the clubbing of income provision. Thus, if your spouse invests that money in any instrument, any gain arising from that instrument will be taxed in the homemaker’s name only.
  • Money gifted to an adult child and invested by him/her: Income or gains earned by an adult child on the money gifted by you is not subject to clubbing in your hands and taxed as per the child’s tax bracket.
  • Savings Ban Interest: Savings Bank interest earned up to Rs. 10,000 per year is tax-free for individuals below 60 years under sec 80TTA and up to Rs 50,000 for senior citizens (above 60 years) under sec 80TTB.
  • Medical Insurance: The medical insurance for you and your family gets you tax deduction up to Rs. 25,000 and if you have also taken medical insurance for your parents above 60 years, then you get an additional deduction of Rs. 50,000.

(Contributed by Shaheen Akhtar, Associate Financial Planner, Team Prithvi, Hum Fauji Initiatives)

Tax Saving When You Sell a Residential Property

Selling a property could be an unsettling tax experience. Let us get aware of some basic residential property hacks to save income tax.

  • Section 54: Deduction under this section will arise only when one sells the property after two years of purchase. The Long-Term Capital Gains (LTCG) can be reinvested in buying or constructing up to two houses. This exemption was limited to only one property but the Budget 2019 extended it to two properties. In case two properties are being bought, sale price of the property should not exceed Rs 2 cr. This benefit can be claimed only once in a lifetime.
  • Section 54 EC: An exemption up to Rs 50 Lakhs is allowed if the LTCG is reinvested in specified Capital Gains bonds within six months from the date of the sale of the house. The bonds are locked-in for 5 years, the interest received is taxable and current rate of interest is 5% per annum. The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd), NHAI (National Highways Authority of India) and IRFC (Indian Railways Finance Corporation Limited), with actually no difference whatsoever between them.
  • Section 54 GB: This section applies if the LTCG from the sale of the residential property is invested in the subscription of equity shares of eligible companies. Eligible companies are the ones which have been incorporated in the relevant financial year, is a manufacturing company, the tax assessee owns at least 50% of the company’s capital or voting rights, and is small or medium enterprises or eligible start-ups.
  • Section 54 F: This is for LTCG arising out of sale of a capital asset other than a residential house and the amount is invested to purchase one residential house in India. It is compulsory that such an investment be made within 1 year before or 2 years after the date of transfer, or that the amount is invested within three years to construct one residential house in India.

(Contributed by Kritika Saini, Relationship Manager, Team Arjun, Hum Fauji Initiatives)

Other Miscellaneous Tax Hacks

  • Gift Income: We all enjoy receiving gifts, and if we can save money on taxes, the joy grows exponentially. In the case of specified relatives, there is no limit on the gift value and it is fully exempt in the receiver’s hands. For others, any amount up to Rs 50,000 given in the form of a gift is exempt from tax. In case of own marriage, again there is no limit on the gift received including gifts in cash for taxation purpose.
  • Forming HUF: This is the all-time favorite tax hack of CAs. The secret behind this is to legally obtain an extra PAN card. We need to put the income generation asset under the name of HUF so that all the benefits of an individual are available to a HUF. However, there are many other aspects which need to be taken care of apart from taxation, which one needs to be aware of before taking this tax hack.
  • Will & Trust: Any income derived from the property held in a trust is taxable in the hand of either the beneficiary or the trustee, which automatically reduces the tax burden if used wisely. On the other hand, the Will acts as a tool for easy inheritance without any tax burden.
  • Donations to political parties and NGOs: Donations made by an individual to political parties and registered NGOs provide an easy hack to claim tax deductions from 10-100% depending on the organization donated to.
  • Benefits for Senior Citizens: There is no magic age at which you are allowed to stop filing taxes, but it must be noted that senior citizens above the age of 75 years are exempted from filing income tax returns provided they have only pension and interest as the source of income.
  • Tax relief u/s 87A: Section 87A provides a tax rebate to individual resident Indian taxpayers up to the age of 80 years if their total income is less than Rs 5 lakh after claiming deductions. For this, one has to calculate the gross total income and reduce deductions under Section 80C to 80U. If the same is below Rs 5 lakh, then no tax is payable.

(Contributed by Ayushi Gupta, Associate Financial Planner, Team Arjun, Hum Fauji Initiatives)

These hacks will help you save tax. Let’s see how many of you will smartly use these smart hacks.

Happy Tax Season to everyone! May the odds be all in your favor this tax filing session.

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