Here is a look at how this can be done.
1. Buy health insurance for your spouse, children, parents
If your parents don’t have any form of health insurance, then you can buy health insurance for them as they must be ageing and may be susceptible to health problems that may require hospitalisation. Under Section 80D, you can get deductions up to Rs 25,000 for parents under the age of 60, and Rs 50,000 if they are above 60. These limits are over and above the 80D limit of Rs 25,000 for health insurance purchased for self, spouse and dependent children.
This is how it works:
|Insured||Premium paid for health insurance – Self (Rs)||Premium paid for health insurance – Parents (Rs)||Total deduction under 80D (Rs)|
|Self (including spouse, children) under 60, and parents also under 60||25,000||25,000||50,000|
|Self below 60, but parents above 60||25,000||50,000||75,000|
|Parents and individual both above 60 years||50,000||50,000||1,00,000|
Source: Income tax department website
Adhil Shetty, CEO, BankBazaar.com says, “You can also avail tax deductions up to Rs 5,000 for expenses incurred on annual medical check-ups within the above limit. This is part of the applicable deduction limit, and includes check-ups for all family members, including spouse and children. If say, you have paid health insurance premium for yourself, spouse and children up to Rs 22,000, and you have additionally incurred medical check-up expenses of Rs 5,000, you can claim deductions of Rs 25,000, which is the overall limit under 80D.”
2. Dependents with disability/disease: You may claim tax deduction under 80DD and 80DDB
If your dependant relatives are differently abled and wholly dependent on you, you can claim deductions under section 80DD for:
- Any expenses incurred by you for their medical treatment which includes nursing, training as well as rehabilitation of dependents who are disabled.
- The amount paid towards Life Insurance Corporation (LIC), Unit Trust of India (UTI) or any of the other insurers solely to buy specified schemes or insurance policies to help in the maintenance of a dependant with disabilities.
Shetty said that it is important to note here that a medical certificate from a government hospital is mandatory to claim the deduction. The certificate should clearly mention the disability of the dependant and the person they are dependent on. This certificate is required to be renewed periodically. “You should know that handicapped dependents/dependent relatives can either be your spouse and dependent parents, children or siblings. You can get deductions against these dependent relatives under section 80DD,” he said.
Section 80DDB of the income tax Act provides a deduction for the amount paid for medical treatment of specified diseases in respect of senior citizens as well as in case of very senior citizens up to Rs 1 lakh, subject to specified conditions. This deduction (from gross total income) is available for the expenditure incurred by a taxpayer on the treatment of specified diseases for self or spouse, and dependent parents, children, or siblings.
This is how it works:
||Expenditure on differently-abled dependent|
||Expenditure on specified diseases of dependant|
3. Save tax by paying rent to your parents
Salaried individuals can save tax by paying rent to their parents and availing the House Rent Allowance (HRA) exemption benefit. However, the property in which you are staying in needs to be owned by one or both your parent(s). You can’t be the property’s co-owner. The rent you pay is income in the hands of your parents, and their income will be taxed as per the prevalent tax slab. Also, if your rent amount exceeds Rs 1 lakh a year, you need to submit the PAN card details of your parents to the employer. Your parent(s) who is the owner of the house and to whom you are paying rent will have to show the rental income in his/her income tax return if his/her gross total income is above tax exemption limit.
4. Invest money in your parent’s name
To save tax, you can gift a certain amount of money to your parents if they are in a lower tax slab as compared to you. This amount will not attract any gift tax in their hands. You can open fixed deposits in your parents’ name with this amount. If your parents are in a lower tax slab, then the tax they will pay on the interest on the FD will be less than what you would have had to pay if you had put the same amount as a FD in your own name.
“If your parents are senior citizens then they may help you earn higher interest income via fixed deposits because often banks offer higher interest rates on FDs placed in the name of senior citizens. Also, under section 80TTB a senior citizen can earn a tax-free interest of Rs 50,000 from various fixed deposits in a financial year,” Shetty said.
Investing money in name of spouse does not help
Rajat Mohan, Partner, AMRG & Associates says that if a husband invests in an asset in the name of his spouse, then any income arising from such asset shall get clubbed with the husband’s income. “Such asset which may be in the form of fixed deposit, debentures, shares or even house property, and income arising from such assets would be in the nature of interest, dividend, capital gain, or rentals on which the income tax needs to be paid by your husband,” he said.
5. Buy property jointly with spouse
Buying property jointly with your spouse has inbuilt tax advantages among others. CA Taranpreet Singh, Partner, TASS Advisors, a firm of business advisors and chartered accountants says that when a spouse is included as a co-owner of the property, it enhances loan eligibility. It extends the tax benefits to both husband and wife for interest on borrowed capital and principal repayment under section 80C of the income tax act. However, both of them cannot claim on the same amount-they can split it. Similarly, where any rental income is generated from the co-owned property, it is taxable in the hands of husband and wife in the ratio of their respective share in the property. “If you and your spouse have not defined any share in the property, it is divided equally for the purpose of taxation giving better tax efficiently in terms of averaging the tax slabs,” he said.
6. Save tax via tuition fee paid for children
School fees paid for your children’s education is eligible for deduction under section 80C of the income tax Act. “Tuition fee paid for two children in a financial year is considered as part of deduction covered under section 80C,” Singh said. The deduction can be claimed by a parent who pays the tuition fee from his income and the deduction is available only for two children.
Singh said that individuals should note that the deduction is limited only for tuition fees and does not cover any other fee such as development fund, exam fees etc.