- Date : 01/08/2022
- Read: 5 mins
This article discusses how payments made to family members - or on their behalf - can get you income tax benefits.
Indian income tax laws allow you to make certain payments on behalf of your family members and claim income tax benefits on those payments. These include paying tuition fees for your child, health insurance premiums for your family members, rent to your parents, etc. All these payments allow you to claim deductions from your taxable income under various sections of the Income Tax Act. These deductions or tax saving options help you reduce your taxable income and save net income tax.
So, if you are wondering how to save income tax, look no further. In this article, we will discuss some of the ways in which your family members can help you save income tax.
1) Children’s tuition fees
Under Section 80C of the Income Tax Act, you can pay tuition fees for your children and avail of deduction from your taxable income. Tuition fee paid to any university, college, school, or other educational institution situated within India for full-time education for up to two children is eligible. The maximum deduction allowed is Rs 1,50,000 in a financial year. Children’s education is a top priority for parents. So, be sure to avail tax benefits for their tuition fees before considering other tax saving investments under Section 80C.
Also Read: How To Save Income Tax By Investing In Fixed Deposits?
2) Life insurance premium for spouse and children
Under Section 80C of the Income Tax Act, you can pay life insurance premiums for self, spouse, and children, and avail of deduction from taxable income. In this case, your spouse and children can help you save income tax if you decide to purchase a life insurance policy in their name(s). The maximum deduction allowed from taxable income is Rs 1,50,000 in a financial year. Before investing in other tax saving schemes, you should consider buying life insurance for the family breadwinners (self and spouse).
3) Paying interest on education loan
Under Section 80E of the Income Tax Act, you can avail of a deduction from taxable income on the interest paid on an education loan. The education loan should be for pursuing higher education for self or a relative. A ‘relative’ in this context can be a spouse, an offspring, or a student for whom you are the legal guardian. The maximum deduction allowed in a financial year is the entire interest paid on the education loan in that year. You can avail of the deduction for the initial year (the year you start paying interest) and the next seven assessment years or till the loan tenure ends, whichever is earlier.
‘Higher education’ refers to any course pursued after passing the senior secondary examination or its equivalent from any school, board, or university recognised by the Government of India. Individuals in the highest tax bracket can save a good amount of tax by paying interest on education loans.
Also Read: Save Tax Under Section 80C With These Four Expenditures
4) Health insurance premiums for family members
Under Section 80D of the Income Tax Act, you can avail of a deduction from taxable income for any health insurance premiums paid for the members of your family:
- Spouse and children: You can pay health insurance premiums for self, spouse, and dependent children and avail of a deduction from your taxable income. The maximum deduction allowed in a financial year is the actual premium paid or Rs 25,000, whichever is lower. If you or your spouse are a senior citizen (60+), this figure is Rs 50,000. So, your spouse and dependent children can help you save income tax if you pay health insurance premiums on their behalf. Except for cash, any mode of payment is acceptable.
- Parents: You can pay health insurance premiums for your parents and avail of a deduction from your taxable income. The maximum deduction allowed in a financial year is the actual premium paid or Rs 25,000, whichever is lower. If one or both parents are senior citizen(s) over 60, the maximum deduction will be Rs 50,000. So, your parents can help you reduce your tax liability if you decide to pay health insurance premiums on their behalf.
You can also avail of a deduction from taxable income for any amount paid towards a preventive health check-up for self, spouse, children, and parents. The maximum deduction allowed is Rs 5000, and it is a part of the overall maximum deduction of Rs 25,000 or Rs 50,000 that you are eligible for.
5) Paying rent to your parents
If you are living with your parents, and the house is in their name, you can consider paying them rent and avail of a deduction for house rent allowance (HRA) from your taxable income. Section 10(13A) of the Income Tax Act allows exemption of HRA for rent payment. The HRA amount that can be claimed as an exemption is the lowest of the following three amounts:
- Actual HRA amount received by the individual.
- Actual rent paid - 10% of salary (Basic + DA).
- 50% of salary (Basic + DA) for those living in one of the four metros, and 40% for those living in non-metros.
Also Read: How To Claim HRA Exemption While Staying With Parents Or Relatives
Tax saving for salaried employees
The government has provided individuals with many income tax saving options under various sections of the Income Tax Act. A qualified and experienced tax advisor can guide you about the various exemptions and deductions you can avail of to save maximum income tax. It is your responsibility to pay tuition fees for your children, buy life insurance, and a health cover for your family members. If you are getting income tax benefits for all of these, shouldn’t you be looking at the best tax saving plans?
Indian income tax laws allow you to make certain payments on behalf of your family members and claim income tax benefits on those payments. These include paying tuition fees for your child, health insurance premiums for your family members, rent to your parents, etc. All these payments allow you to claim deductions from your taxable income under various sections of the Income Tax Act. These deductions or tax saving options help you reduce your taxable income and save net income tax.
So, if you are wondering how to save income tax, look no further. In this article, we will discuss some of the ways in which your family members can help you save income tax.
1) Children’s tuition fees
Under Section 80C of the Income Tax Act, you can pay tuition fees for your children and avail of deduction from your taxable income. Tuition fee paid to any university, college, school, or other educational institution situated within India for full-time education for up to two children is eligible. The maximum deduction allowed is Rs 1,50,000 in a financial year. Children’s education is a top priority for parents. So, be sure to avail tax benefits for their tuition fees before considering other tax saving investments under Section 80C.
Also Read: How To Save Income Tax By Investing In Fixed Deposits?
2) Life insurance premium for spouse and children
Under Section 80C of the Income Tax Act, you can pay life insurance premiums for self, spouse, and children, and avail of deduction from taxable income. In this case, your spouse and children can help you save income tax if you decide to purchase a life insurance policy in their name(s). The maximum deduction allowed from taxable income is Rs 1,50,000 in a financial year. Before investing in other tax saving schemes, you should consider buying life insurance for the family breadwinners (self and spouse).
3) Paying interest on education loan
Under Section 80E of the Income Tax Act, you can avail of a deduction from taxable income on the interest paid on an education loan. The education loan should be for pursuing higher education for self or a relative. A ‘relative’ in this context can be a spouse, an offspring, or a student for whom you are the legal guardian. The maximum deduction allowed in a financial year is the entire interest paid on the education loan in that year. You can avail of the deduction for the initial year (the year you start paying interest) and the next seven assessment years or till the loan tenure ends, whichever is earlier.
‘Higher education’ refers to any course pursued after passing the senior secondary examination or its equivalent from any school, board, or university recognised by the Government of India. Individuals in the highest tax bracket can save a good amount of tax by paying interest on education loans.
Also Read: Save Tax Under Section 80C With These Four Expenditures
4) Health insurance premiums for family members
Under Section 80D of the Income Tax Act, you can avail of a deduction from taxable income for any health insurance premiums paid for the members of your family:
- Spouse and children: You can pay health insurance premiums for self, spouse, and dependent children and avail of a deduction from your taxable income. The maximum deduction allowed in a financial year is the actual premium paid or Rs 25,000, whichever is lower. If you or your spouse are a senior citizen (60+), this figure is Rs 50,000. So, your spouse and dependent children can help you save income tax if you pay health insurance premiums on their behalf. Except for cash, any mode of payment is acceptable.
- Parents: You can pay health insurance premiums for your parents and avail of a deduction from your taxable income. The maximum deduction allowed in a financial year is the actual premium paid or Rs 25,000, whichever is lower. If one or both parents are senior citizen(s) over 60, the maximum deduction will be Rs 50,000. So, your parents can help you reduce your tax liability if you decide to pay health insurance premiums on their behalf.
You can also avail of a deduction from taxable income for any amount paid towards a preventive health check-up for self, spouse, children, and parents. The maximum deduction allowed is Rs 5000, and it is a part of the overall maximum deduction of Rs 25,000 or Rs 50,000 that you are eligible for.
5) Paying rent to your parents
If you are living with your parents, and the house is in their name, you can consider paying them rent and avail of a deduction for house rent allowance (HRA) from your taxable income. Section 10(13A) of the Income Tax Act allows exemption of HRA for rent payment. The HRA amount that can be claimed as an exemption is the lowest of the following three amounts:
- Actual HRA amount received by the individual.
- Actual rent paid - 10% of salary (Basic + DA).
- 50% of salary (Basic + DA) for those living in one of the four metros, and 40% for those living in non-metros.
Also Read: How To Claim HRA Exemption While Staying With Parents Or Relatives
Tax saving for salaried employees
The government has provided individuals with many income tax saving options under various sections of the Income Tax Act. A qualified and experienced tax advisor can guide you about the various exemptions and deductions you can avail of to save maximum income tax. It is your responsibility to pay tuition fees for your children, buy life insurance, and a health cover for your family members. If you are getting income tax benefits for all of these, shouldn’t you be looking at the best tax saving plans?
