Five unusual ways to save income tax

Adhil Shetty With few months left for this financial year to close, you must be exploring last minute solutions to save income tax. Availing deductions under Section 80 (C) through investment of up to Rs 1.5 Lakh in eligible investment instruments and Section 80 (D) through health insurance premiums are the most common ways to reduce tax liability. However, in case you fall short of your tax-saving requirements with these tax-saving tools, there are some lesser known ways to save a substantial amount of the tax out-go. Here are a few unusual ideas you could consider.Tax management using your HUF statusIf you have a source of income from your family, say a family business or an ancestral property, you can form a separate entity called the Hindu Undivided Family (HUF), which has its own PAN number and is therefore taxed separately. The tax slabs and exemptions are same as that of an individual. You can claim deductions under 80 (C), (D), (G) etc. To open an HUF account, you need to be the Karta (manager) of your family. The Karta manages all affairs of the family including income from ancestral property or businesses. If you show income from your family business or ancestral property in your HUF file instead of your individual file, your tax liability is reduced significantly. A father with an HUF status can gift a property or money to his son with HUF status without invoking any tax incidence.Gift money to your spouseIf you gift money to your wife, she won’t have to pay taxes for the debited amount. However, any income earned from investment made with such money would be clubbed with the husband’s income and taxed as per his tax slab. If the wife further invests the income earned from such investments last year into some assets, it won’t be subjected to tax deduction if tax has been already paid for it in the previous year. Say you have gifted Rs 20 lakh to your wife from your annual income which has already been taxed. It would be tax free in your wife’s account. If your wife invests this amount in a bank FD and earns an interest of Rs 1.6 Lakh (at 8% PA), such an interest income would be clubbed with your income and taxed as per your applicable tax slab. Next year, if your wife invests the interest income and earns an interest on it, this income would be accounted as per her individual tax slab and won’t be clubbed with your account. The wife can save taxes further by investing in instruments with tax benefits such as stocks and ELSS. Gift money to parents and then investIf you gift money to your parents or in laws, any income earned from investment of such money would be taxed as per the parents’ applicable tax slabs. For example, if you gift Rs 20 Lakh to your parents and invest it in an asset, income from it would be taxed as per the individual capacity of parents and if it falls within the exempted limit (Rs 3 Lakh for senior citizens) it would be tax free.Pay rent to parentsYou can claim deductions under Section 80GG for rent even if you are not eligible for HRA. If you are living with your parents, you can pay them rent and claim benefit for the eligible amount from your income. However, do check your parent’s tax liability to evaluate actual benefits.Donate your moneyIf you want to donate money, look for organisations such as charitable trusts and eligible relief funds to claim deductions under Section 80 (G) and 80 (GGA), as per the prescribed limit. The tax deduction could range from 50% to 100% of the donation amount depending on the qualifying limit for such organisations. Under Section 80 (GGC), you can claim up to 100 % tax deduction if the donation is made towards a political party (Registered under Section 29A of representation of the people Act 1951).The author is CEO at BankBazaar.com