Maximizing Tax Savings: A Guide for Married Couples

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Maximizing Tax Savings: A Guide for Married Couples.

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Getting married introduces a host of new responsibilities that cannot be avoided. After tying the knot, couples begin to outline their various aspirations, such as pursuing higher education, taking extended vacations to discover new places, or investing in property. Nowadays, when both partners are employed, they typically share the burden of everyday expenses. This includes everything from paying EMIs to investing in assets or other financial plans.

Seperate Investment.

Separate health insurance policies are a smart choice for couples, as it allows each person to claim up to ₹25,000 for their own policy. Additionally, if the parents of either spouse are senior citizens, you can claim an extra ₹50,000 for their health insurance premiums, leading to significant savings on your taxes.

Life Insurance Policy.

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When it comes to life insurance policies, both husband and wife can claim deductions under Section 80C individually. It’s important to note that the premium amounts for life insurance policies can vary based on the ages of the individuals. Therefore, the exemption claim will also depend on the premiums paid, which are influenced by the ages of both partners. This can be beneficial in maximizing tax benefits while ensuring adequate coverage for both partners.

Medical Insurance.

Medical insurance is a crucial aspect that couples often prioritize after marriage, ensuring their family’s health and safety. Under Section 80D of the Income Tax Act, an individual or Hindu Undivided Family (HUF) can claim a deduction of Rs 25,000 for health insurance premiums paid for themselves and their family. This deduction includes Rs 20,000 for the insurance premiums and a sub-limit of Rs 5,000 for preventive health check-ups. It’s important to utilize the check-up limit each year to maximize the benefits available.

When both spouses are tax-paying individuals, they can further enhance their tax benefits by each claiming deductions separately under Section 80D. This means that if one spouse pays for both their own and their partner’s health insurance, they can claim a total deduction of Rs 50,000 (Rs 25,000 each). 

For example, if you pay a premium of Rs 13,000 for your health insurance and Rs 11,000 for your spouse’s health insurance, you can claim a total deduction of Rs 25,000. If your taxable income is Rs 4,00,000, after applying the deduction of Rs 25,000 under Section 80D, your new taxable income would be Rs 3,76,000. This effectively reduces your taxable income by Rs 10,000, showcasing how paying for your spouse’s health insurance can yield additional tax savings.

Home Loans.

Home loans are a significant step for young couples after marriage, and they come with various tax benefits under the Income Tax Act. One of the key sections that provide these benefits is Section 80C. If both partners are tax-paying individuals, they can maximize their tax benefits by co-borrowing the home loan on a 50:50 basis. Each individual is entitled to a deduction of Rs. 1,50,000 for home loan repayment per year. Therefore, for a married couple who are both taxable individuals and co-borrowers, this benefit can be effectively doubled to Rs. 3,00,000 per year.

In addition to this, Section 24(B) allows for a deduction of Rs. 2,00,000 per year on the interest paid on the home loan. Similar to the principal repayment deduction, this benefit can also be doubled when both partners are taxpayers and co-borrowers of the loan. This means that together they can claim a total of Rs. 4,00,000 on interest payments, making home loans a tax-efficient investment for couples looking to build their future.

Tax file through gift loan.

Tax planning through gifts or loans can be a strategic way to manage income and taxes. In the scenario where the husband gifts Rs. 10 lakhs to his wife, and she invests this amount, generating Rs. 1 lakh per year, there are important tax implications to consider.

(1) As per the clubbing provision, the Rs. 1 lakh generated from the investment will be clubbed back into the husband’s income and taxed accordingly. This means the husband will be liable to pay tax on this income as if it were his own.

(2) If the wife then invests this Rs. 1 lakh further and earns an additional Rs. 30,000, this amount will not be clubbed back into the husband’s income. Instead, it will be taxed separately as income generated from the wife’s investment.

It is advisable for the wife to choose tax-efficient assets like a Public Provident Fund (PPF), which offers tax-free returns, to maximize her investment benefits while minimizing the tax burden.

Proper investment planning is essential for reducing the overall tax liability of a household. By strategically planning investments, couples can significantly compound their savings and minimize taxes. For example, if one partner falls into the 30% tax bracket, they can focus on higher tax-saving investments, while the other can concentrate on other tax-saving instruments. Additionally, bringing another family member into the household can help generate tax-free income.

When both partners are earning well, they can leverage various components of their salaries to gain additional tax benefits. Components like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and medical reimbursements can provide significant tax advantages.

For instance, if a husband and wife are living in rented accommodation, the tax-exempt portion of HRA will be the minimum of the following calculations:

Actual HRA (House Rent Allowance) received is calculated as 50% of the basic salary for those living in a metro city and 40% for those in a non-metro city. To determine the exempt portion of HRA, you subtract 10% of your basic salary from the total annual rent paid.

When it comes to joint ownership of property, co-owning a rental property allows both partners to share the rental income, which can help reduce the total tax liability for both. Every little saving counts.

It’s also important to take advantage of tax slabs. If one spouse falls into a lower tax bracket, transferring some interest income can help in lowering the overall tax burden for the couple.

Additionally, parents can claim up to ₹1.5 lakh for their children’s education expenses under Section 80C. Since both parents can make this claim, it results in a combined benefit of ₹3 lakh.

Leave Travel Allowance.

Leave Travel Allowance (LTA) allows both you and your spouse, if you are both taxpayers, to take up to four trips each within a block of four years, which means a total of eight trips combined over that period. The expenses incurred during these trips are exempt from tax. However, the specifics depend on your employer, as LTA is included in your Cost to Company (CTC) package. The LTA amount specified in your package determines how much you can spend on travel.

Any expenses you make within this LTA limit are tax-exempt, but any unused portion will be added to your taxable income and taxed according to your income tax bracket. Therefore, it’s wise for both partners who pay taxes to take vacations and trips to help reduce their overall income tax liability.

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