For salaried individuals, the amount of money deducted from their hard-earned paychecks in the form of taxes gives them the biggest headache when planning their monthly budgets. Apart from the income tax deducted by the employers, the professionals also have to contend with other taxes levied by the Union and the States. One way of getting more out of the gross income is to cut down on the income tax paid by the employees. Although some avenues are very much exploited to save some money from going as tax, other measures can prove equally effective when cutting down on the tax paid.
Here are 4 lesser known ways that can save more money from your gross income:
1. Saving Money using Head of Family status
For those whose income is dependent on family-run business or ancestral property, this is a good way to leverage the status as family head to save some money. The tax slabs are the same as that offered to the individual assets but adds up in the case of joint families. For this, the family and the source of income need to be registered as a Hindu Undivided Family (HUF). However, for this to be effective, the claimant must be the head of the family, since all the businesses and lands are managed by the head.
2. Gifting money to Parents
It is well known that senior citizens are eligible for lesser tax slabs and greater deductions. This fact can be exploited by the current breadwinners of the family as well. Gifting money to parents from the already-taxed income is exempted under Section 80(C) of the Income Tax Act. Furthermore, any money earned by investing this gifted money is also eligible for tax-free status provided the invested capital is under Rs. 3 Lakh.
3. Leveraging of Loan Deductions
For the average professional, the biggest liability is the amount of loan taken from the banks. However, there are a variety of ways the loans can be used to generate tax deductions. For home loans, principal repayment up to Rs. 1.5 lakh and interest payment up to Rs. 2 lakh per annum respectively is completely tax exempt provided the house is taken possession of after construction completion. In case of educational loans, this tax exemption is applicable on the interest under Section 80(E), which can be utilised for the first 8 years of loan repayment.
4. Donation of Money
It is a well-known fact that donations to the Prime Minister’s National Relief Fund is tax exempted under Section 80(G). However, this also applies to donation to religious sites and charitable institutions under Section 80(G) and Section 80(GGA). The margin of tax deduction can range from 50% to 100% depending upon the amount donated. Interestingly, if donation is made to a political party registered under Section 29A of Representation of the People Act of 1951, then an exemption of 100% can be claimed under Section (GGC).
These strategies, while being very unconventional, are also a great way of pulling wool over the eyes of tax assessors. Utilising them can lead to salaried individuals saving more of their money from going into the taxes. Investors and the general public are encouraged to follow these out-of-the-box strategies to save up some more money than their peers.