Tax Planning Tips: Income Tax Saving – Axis Direct
Jan 09, 2019 | Source: www.rediff.com
Tips For Better Tax Planning
Spread your income among your family members
The first step in tax saving is to adopt the concept of divide and rule. The simple rule is that each family member must have his or her independent source of income so as to legally become an independent taxpayer under the provisions of the income tax law.
In case the entire income of a family belongs to just one member, the tax liability is much higher than when the same income is spread among different members of the family.
Now, under the income tax law it is not possible to arbitrarily divide one's income among different members of the family -- and then pay lower tax in the names of different family members. However, this goal can be achieved by intelligent use of the facility of gifts and settlements.
Gifts you receive are not your income
Generally, any gift you receive from various members of your family and specified relatives is not considered your income but a capital receipt. Thus, no income tax is payable on gifts received from relatives -- and also gifts received from parties other than relatives up to a sum of Rs. 50,000 and at the time of marriage up to any amount.
The first rule of tax planning requires that one develops income tax files for oneself, one's spouse, one's major children, the Hindu Undivided family, and for all other major relatives in the family, including one's parents. The development of different files of major family members can be achieved through the process of gifts and settlement.
No income tax on your inheritance
No income tax is payable on any amount received or inherited by you, whether in the form of movable assets or immovable assets, consequent to the demise of your friend or relative. Moreover, there is no upper limit to this exemption.
Hence, whenever you receive either bank fixed deposit, shares or immovable property consequent to the demise of a person, you don't have to pay any income tax at all on the value of all inherited assets.
The simple rule is that the asset so inherited by you is not your income; it is a capital receipt. Hence you are not liable to pay any income tax on the money and assets you inherit.
Take full advantage of all tax exemptions
The second step of tax planning lies in claiming all the exemptions and deductions which are permissible under the income tax law.
A list of most such exemptions and deductions is contained in Section 10 of the Income Tax Act. This list has to be optimised depending on your facts and circumstances.
If you and your family members are not claiming the optimum benefit of exemptions and deductions, then it is time to focus on investment planning in the group so that every family member gets full benefit of all permitted tax exemptions.
Take full advantage of tax deductions
Then, too, various tax deductions are available under the income tax law. One should try to avail of the benefit of these deductions for each and every member of the family.
The various investment options that offer tax rebates should be reviewed keeping in mind various aspects like the age factor, etc. A check-list should be prepared of the various deductions permissible under the income tax law.
Check whether each and every tax paying family member is claiming these. If special care is taken of this aspect, then it is legally possible to save a lot of income tax.