Smart ways couples can save on income tax

Looking for tax exemptions that couples can avail? Read this to know more.

couple saves income tax

A perennial problem for salaried people the world over is, ‘How can I reduce my tax liability without running afoul of the law?’ When it comes to couples, this issue is even more pressing. Most countries, including India, offer exemptions and incentives to married couples, so why not take advantage of such deductions to reduce your total household tax burden? 

There are many options available to you and your spouse; here are some of the most popular ones:

1. Go for a joint home loan

This is a huge benefit for couples looking to purchase a home as home loans are not only a popular way to save tax, but when availed of as a couple, the allowable tax benefits can be doubled. 

joint home loan

If both spouses fall in different tax slabs, the individual in the higher slab should pay more and claim a higher deduction. However, there are two important considerations to bear in mind:

Both individuals have to be eligible for the loan, and the tax benefit received will be in the ratio the loan burden is shared.
If you buy a property in the name of your spouse who hasn’t made a contribution towards the home loan, the provisions do not apply.  

Related: 5 reasons to go for home loan refinance

2. Invest in the name of the spouse in the lowest tax bracket

While the options for couples to save tax are limited, you can plan your investments in a manner that the overall tax liability of the household decreases. 

One of the mistakes couples make is investing in their own names and bearing the burden of tax that arises. If you’re investing in fixed income schemes, the best way to invest is to do so in the name of the spouse in the lower tax bracket.

For example, if your spouse is in a lower tax bracket than yourself, general monthly expenses should be taken care of by you, with the balance invested. Your spouse, on the other hand, should use the income primarily for general wealth creation instead of focusing only on tax savings, since returns will be taxed at a lower rate than if you had made the investments yourself.

At the end of the day, you both have to decide what your priorities are, and how the household and individual tax liability can be reduced to your joint benefit in the long run.

3. Make tax-free investments in your spouse’s name

Another smart option to save on household income tax is to gift money to your spouse, as long as it’s then invested in investment options such as PPF, tax-free bonds etc. Any income generated from these investments is treated as earned by your spouse. Depending on their tax bracket this amount could be tax-free or taxed at a lower rate than if you had made the same investment.

Related: How women can save in India

4. Get LTA (Leave Travel Allowance) exemption

If you and your spouse are both working and are eligible for LTA, you can claim it individually. The LTA rule of being eligible twice in a four-year period means each spouse can claim LTA exemption four times in a block of four years.

All you need to do is plan to take your exemption in the first and third year, while your spouse does so in the second and fourth years. But remember, LTA is only valid for the cost of travel alone. Hotel expenses, food, and other holiday costs are not permissible exemptions.


Related: Tax-saving components of your CTC

One area that has a degree of ambiguity attached to it concerns House Rent Allowance (HRA). Financial experts remain divided on the matter. While some feel income tax rules don’t prohibit payment of rent to one’s spouse, as long as the claim is genuine, others feel that paying rent to a spouse and claiming HRA benefit is a sham arrangement. The Income Tax Department has consistently held that such arrangements are utilised as means to evade tax.

HRA exemption isn’t allowed if the person paying the tax owns the accommodation or, if they don’t pay rent for the accommodation in the first place.If you intend to explore this option, it is advisable to talk to your CA, as well as a financial expert, before you decide on the way forward.

At the end of the day, tax-saving strategies depend on the understanding and trust between you and your spouse. By discussing and planning your overall tax burden before the start of the financial year, you’ll be in a position to extract the maximum benefits from the allowances available, and perhaps enjoy a family holiday with the money saved.


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