Rohit and Priya were a working couple. Rohit was an engineer and Priya a manager. This made them a high income couple. They ended up paying a lot of tax. So how could have reduced their tax? What steps should they have taken to lower their tax liability?
If you are in this position, follow these tips to lower your tax liability:
- Make smart use of investments If you and your spouse fall in different tax brackets, it is important that the one who pays higher tax should claim tax deductions, if the investments are made jointly. This would lower the tax liability. E.g. if you and your spouse have invested in PPF, and you fall in the higher tax bracket, then you should claim the tax deduction.
- Opt for joint home loans. If you don’t have a home or want to upgrade to the bigger home, apply for a joint home loan. This will let you claim a principal repayment of 1 lakh each and 1.5 lakh each on the interest repayment.
- Use the benefit of trust. If there are kids involved, form a separate trust for each of them. This will allow them to benefit from the income tax deduction under section 164 of IT Act. They can also create trusts to donate money to their favorite charities, deities etc.
- Design a HuF to reduce the tax payable on the gifts received during the wedding. Both the partners should take this step.
- Let the person in the higher tax slab withdraw money from the investments. This will lower his taxable income.
Follow these tips and lower your income tax bill.