This article is second in the series on how to save income tax through tax planning. In the previous article on Tax planning strategies for Young and beginners, I have discussed the various ways where a young person can save his tax outgo by using the 4 golden rules. Those golden rules will be used at every life stage to do a proper tax planning.
Through this article, I will put across some ways to save income tax through tax planning for a young married couple, with no kids.
Save income tax through Tax Planning for young married couple with NO kids
From tax planning point of view, this stage brings in one more tax file in a family, which means the division of income has found one more person. And this new person will also help us generate more tax-free income in future.
The case would be different if the person is already working and earning and is already having taxable income.
1. Create a tax file through Marriage gifts:
Income tax act has exempted the gifts received in cash or kind on the occasion of marriage from gift tax purview, so you should make the most of it. A decent tax file for your spouse can be created if all the gifts received on marriage used for this purpose.
But you have to be sure to keep records of all receipts and also the expenditure done on marriage should be properly recorded.
2. Create a Tax file through Gift/Loan:
If you have not used marriage gifts for this purpose then don’t worry, you have other options available. You may gift her or loan her some amount to invest somewhere the returns of which will help her in generating a separate income for her. Please note that this will attract clubbing of income.
Let’s understand with an example:
Husband gifts Rs 10 lakh to his spouse who’s a homemaker. Wife invests this amount somewhere and generates Rs 1 lakh in a financial year. Now as per clubbing provisions of income tax this Rs 1 lakh generated out of gift given by husband will be clubbed back in the income of husband and taxed accordingly.
But, If wife invests Rs 1 lakh in some other asset and generates Rs 20000/- then this Rs 20000/- will not be clubbed with husband and treated as wife’s income only.
Thus, one has to be sure while gifting, that money should be invested in the assets which generate tax-free income like PPF etc.
But, when the money is to be invested in some taxable assets then better to give her loan.
3. Take benefit of exempted income:
Now you have one more person in your family which will help you generate tax-free income. You may invest in the Public provident fund up to the maximum limit in her name. (Read: All about PPF)
4. Use the tax exemptions to the full:
Take maximum advantage of savings u/s 80C, 80D and others eligible for, so maximum taxable income should get adjusted in that. Like for e.g. you have invested your spouse’s fund in such a manner that it has generated Rs 4.75 lakh as taxable income, you can make it NIL by investing it properly in tax saving instruments.
5. Tax benefits in Home Loan :
If you both have good tax files, then you may go in for a home loan as a co-applicant and co-owner and claim the benefit of Principal u/s 80c and Interest payments u/s 24.
You may also take a loan from each other for home purchase and claim tax benefit of interest payment u/s 24. This is one of the major advantages of creating different tax files in the family.
6. Business expenditure:
If you are in business and by doing a proper tax planning you have created a good tax file of your wife, then you may take a loan from her account and take benefit of interest payment as business expenditure.
While a new member helps in creating a new tax file in the family, precautions should be taken to avoid the clubbing provisions. Proper tax planning will be able to take care of all the grey areas.
Multiple tax files should be for the betterment and not increase the tax administration burden.
In the next articles, I will cover how to save income tax through tax planning for Young family with KIDs (Minor, major) and tax planning after retirement.….so don’t go away we’ll come back very shortly.
If you have some other ideas which will benefit in tax planning for young married, then please feel free to share.
Year 1: I gift wife (homemaker – no source of income) 3 lac. of which 1 lac invested in PPF and 2 in Long term Equity MF.
Year 2: Sold equity MF (after holding for 12+ months). Made a profit of 40k. Maturity Value 2.40 lac from MF. This is then invested in short term FD or Liquid MF which mature in the same year. Is the profit from FD or Liquid/Debt MF taxable? If so, in whose hands?
If only Rs 40k gets invested and wife earns whatever out of it , then this would be counted as income of wife. But if Rs 2.40 lakh is invested, then the gain portion out of Rs 2 lakh will be clubbed in your income.
Wife is homemaker.
I have already invested 1lac in my PPF account.Can I open and deposit 40k in my wife’s PPF account and claim tax benefit for the 40k (which is in my wife’s PPF )?