Maximize Your Finances By Collaborating With Your Family: A Comprehensive Guide
Introduction
Family is not only our sanctuary from life's mishaps but also a potential goldmine when it comes to sound financial planning. Many may not immediately associate family with finances, partially out of fear that mixing the two would incite disaster. However, the stats highlight that about 79% of women do not work in India, urging reliance on a single breadwinner. Thus, as a household, identifying tax-saving hacks and exploring all avenues for wealth preservation is essential. Let's explore how family collaboration can boost financial well-being.
Financial Collaboration with Parents
Advantage of Senior Citizen Tax Benefits
Parents play a crucial role in most people's lives, not just emotionally, but also financially. Especially for senior citizens, the basic exemption limit is ₹3 lakhs for those between 60 and 80 years, and ₹5 lakhs for over 80 years. For individuals below 60 years, it's ₹2.5 lakhs. Now, if you plan well, combining the tax liability for both parties can minimize the taxable income.
Furthermore, under Section 80TTB, senior citizens can deduct up to ₹15,000 for interest earned on savings and deposit accounts. Even banks offer 0.5% more interest to senior citizens. Therefore, the smart move would be to invest in their name, and the interest will accumulate in their name, not yours. This way, instead of paying taxes at 30%, your parents in a lower tax slab will pay far less.
Health Insurance Benefits for Parents
Purchasing a health insurance cover for your parents can also save significant tax. Under Section 80D, if you cater to their health insurance premium, you can deduct up to ₹25,000 (for parents below 60) and ₹50,000 (for those over 60). Additionally, Section 80DDB allows a tax deduction for medical expenses incurred up to ₹1 lakh for treatment of senior citizen parents or ₹40,000 for parents aged below 60 for specified illnesses.
Saving Money Through Siblings
Gifts and Educational Loans
Siblings can play a crucial part in your tax planning too. Monetary gifts from siblings are tax-exempt without any upper limit. Further, if your siblings depend on you and need to borrow for higher education, claiming their education loan benefits under Section 80E being a co-applicant can offer you a tax deduction for loan repayments.
Supporting Dependent Siblings
If you're in a metropolitan city pursuing career goals, and your dependent siblings come over to visit, you can use your Leave Travel Allowance (LTA) to cover their travel expenses. Also, student discounts can be availed by your college-going siblings to save money.
Financial Perks with Your Spouse
Spouses often jointly undertake the biggest expense - the house. A joint home loan paves the way for numerous tax benefits such as deductions under Sections 80C and 24B. Furthermore, Section 80EEA offers first-time borrowers (property value till ₹45 lakhs) an additional deduction of ₹1.5 lakh for the interest paid on home loans. This saves a significant amount in taxes per year.
Tax Breaks with Children
Government initiatives offer several benefits when raising children. For example, your children, if they're studying and thus not earning a significant income, you can make investments in their name without any tax liability. This is a brilliant way to save tax while educating your kids about the importance of investments. Furthermore, children’s tuition fees fall under tax deductions under Section 80C.
If your child needs an education loan, acting a co-applicant in the loan can give you tax benefits under Section 80E.
The Magic of Hindu Undivided Family (HUF)
An HUF is a separate entity for tax purposes with its separate PAN card and Income Tax Return. They can own additional properties, engage in business, pay for its members, and claim tax benefits. If you form an HUF, tax deductions that might be ignored otherwise due to deduction limits can be claimed effectively through HUF accounts.
Concluding Note
Indeed, family squabbles are an unavoidable part of life, but a family that plans their finances together stays together. Arrange your resources intelligently to optimize your financial planning and trim those taxes. Save with your family, for your family.