Family Tax Planning and Spouse Income in India
Best way to lower your tax
- Taxpayers can legally lower the incidence of income tax by transferring their sources of income among family members. Each member of the family can avail the basic personal income tax exemption limit.
- The basic income tax exemption limit for male individuals and HUFs is Rs.1,60,000; for resident women tax payers Rs.1,90,000 and for resident senior citizens Rs.2,40,000
- To legally become an independent tax payer under the provisions of the income tax law, each family member must have independent source of income.
- The first step to save tax through family tax planning is to divide the income.
- For example, if a taxpayer’s parents/other members who are majors are not paying income tax today but by receiving some gift from friends or relatives or from anyone, the income so generated from such funds would belong to them.
- This way, independent income tax files can be started for different family members.
- The simple methodology of tax planning for a nuclear family is to have separate income tax file for self, spouse and each children as well as the Hindu Undivided Family.
- Your parents and in-laws too can save you taxes. By just giving away a portion of your funds either as gift or a loan to your parents/in-laws, your income tax burden become light as the income on funds transferred by you to them would be taxed in their hands, only if the same exceeds the basic exemption limit.
- To avoid clubbing of the incomes, you may receive gift from any relative other than your spouse and in the case of a daughter-in-law from her father-in-law.
- Once the income is divided and spread among more people, chances are that some of them would attract no taxes at all or lower rates of tax.
- Also, each one is entitled to independently claim exemptions, deductions, rebates, etc.
- Any income that arises from any assets that have been gifted to one’s spouse will be clubbed with the income of the person making the gift.
- However, any income earned on the income from the assets that have been gifted, if they have been reinvested, will not be clubbed with the income of the person making the gift.
- Such income will, instead, be taxed as the independent income of the receipt spouse.