Unconventional but Effective Tax Saving Tips for Salaried Individuals Applicable for the FY 2023-24 (AY 2024-25)
Optimizing your tax saving is crucial, especially for individuals falling under tax bracket. Strategic planning well in advance is key to navigating the complexities of tax saving options. Last-minute decisions may leave little room for a thorough analysis of your tax structure, forcing you to invest substantial amounts hastily in various options to alleviate the tax burden.
While many are familiar with conventional tax saving tools like those under Section 80C of the Income Tax Act, there exist lesser-known sections that can contribute significantly to your tax saving. Beyond Section 80C, this article explores unconventional yet effective ways to save on taxes, shedding light on options that might not be as popular but can yield substantial benefits. Stay informed and discover innovative approaches to optimize your tax saving strategies.
Let us now delve into some of such lesser-known provisions under Income tax which can save a substantial amount of your tax burden in the financial year 2023-24.
Pay Rent to your Parents/ Spouse
If you’re residing with your parents or spouse, strategically paying rent to them can be a smart move to maximize your tax saving. This method allows you to claim House Rent Allowance (HRA) deductions under section 10(13A) of the Income Tax Act, 1961, especially if your parents/spouse are the sole owners of the house.
By paying rent to your parents, you not only save taxes individually but as a family unit. Let’s break it down: if you pay an annual rent of Rs 1,20,000 to your parents and the property tax is Rs. 20,000, your net income becomes Rs. 1,00,000. With a 30% standard deduction, your final taxable income will be approximately Rs. 70,000.
Furthermore, if your parents’ total taxable income is lower than yours, they fall into a lower tax bracket. This results in a reduced overall tax liability for the family. While you, as the taxpayer, get an exemption up to Rs 2.5 lakhs, if your parents are 60 years or older, they can enjoy an exemption up to Rs 3 lakhs. For those aged 80 or more, the exemption extends to Rs 5 lakhs.
If you’re married and the property is owned by your spouse, a similar strategy applies. You can pay rent to your spouse and claim HRA for tax exemption purposes. Remember to formalize the arrangement with a rent agreement and keep detailed rent receipts from your parents or spouse.
Incorporating this tax-saving strategy not only benefits you individually but contributes to significant tax savings for the entire family. It’s essential to be legally compliant by having proper documentation in place.
Invest in your Parent’s Name
If your parents fall within the non-taxable or lower tax bracket, consider making smart financial moves by gifting them money and investing in their names. The beauty of this strategy lies in the fact that parents won’t be taxed on the gifted amount, opening doors for a range of investment options.
Explore investment avenues such as the Senior Citizens’ Saving Scheme, Post office schemes, or other tax-saving instruments. A popular choice is parking funds in bank Fixed Deposits (FDs). Senior citizens, in particular, enjoy the added advantage of a tax exemption of up to Rs 50,000 on interest income from savings or FDs across banks, post offices, or cooperatives, as per section 80TTB.
Even if the interest earned exceeds the exemption limit, the tax liability for seniors remains significantly lower compared to individuals in higher tax brackets. It’s important to note that the tax-exempt limit for individuals below 60 years is Rs 2.5 lakh, whereas for those above 60, it increases to Rs 3 lakh. Seniors aged 80 or above benefit from an even higher exemption limit, set at Rs 5 lakh.
This thoughtful investment approach not only secures potential returns but also aids in minimizing tax burdens for your family.
Take Loan from Parents and Pay them Interest
For individuals whose parents fall within a low tax bracket or are not taxed, a savvy strategy is to consider taking a loan from them for household expenses and paying interest on it. To enjoy tax exemption, it’s crucial to obtain an attested certificate for interest payments. Without this proof, the sought-after tax benefits may not be granted. The avenue for this tax exemption lies under Section 24B of the Income Tax Act, offering a maximum discount of up to Rs 2 lakh.
By leveraging this approach, you not only meet your household expenses but also capitalize on potential tax savings. It’s imperative to ensure all necessary documentation is in place to substantiate the interest payments. This proactive step aligns with the tax regulations, ensuring you can benefit from the specified tax exemption.
Incorporate this financial strategy into your planning to optimize your tax saving and make informed decisions that align with your family’s financial well-being. Remember, proper documentation is the key to unlocking these tax advantages, so be diligent in obtaining the necessary certificates to secure your tax exemptions effectively.
Claim Exemption on Pre-Nursery/Play School Fees for Your Child
Did you know that even if your child is in playgroup, pre-nursery, or nursery, you can avail tax exemption on their school fees? This often-overlooked tax benefit, clarified in a 2010 circular, falls under section 80C of the Income Tax Act.
The circular states that play-school activities, pre-nursery, and nursery classes are considered part of “full-time” education. This allows you to claim a tax deduction under section 80C for the fees paid towards these educational activities.
It’s important to note that you can enjoy this exemption for a maximum of two children. By leveraging this provision, you not only provide early education for your little one but also make a financially savvy move by reducing your tax liability.
Benefit from Health Insurance or Medical Expenses for Parents
Take a proactive approach to both your tax saving and your parents’ health by exploring the benefits of health insurance and medical expenses. Securing health insurance for your parents not only ensures their well-being but also offers tax exemptions on the premium amount.
For parents below 60 years of age, enjoy a tax exemption on health insurance premiums up to Rs 25,000. If your parents are 60 years or older, the tax exemption limit extends to Rs 50,000, providing substantial relief on your tax liability.
In addition to health insurance, even preventive health checkups, even if paid in cash, can be claimed for parents below 60 years, with a cap of ₹5,000. Senior citizens (aged 60 and above) without health insurance can claim deductions of up to ₹50,000 for incurred medical expenses.
While the Income Tax Act doesn’t explicitly define “medical expenditure,” it generally covers costs such as medical consultations, impairment aids, and medicines. This broad scope allows you to make the most of deductions and optimize your tax-saving strategy.
By combining health insurance coverage and strategic utilization of medical expenses, you not only safeguard your family’s health but also ensure significant tax savings.
For Know More Details about Income Tax Deductions CLICK HERE
To Know the Income-Tax Slabs & Rates for Fy 2023-24 CLICK HERE
Also Read
Way to file your Income Tax Return after Missing the December 31 Deadline
Major Income Tax Deductions for Individuals Available in FY 2023-24 under Old Tax Regime