Better Investing with the Great Indian Family

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Co-authored by Gautam Jayaraman
We Indians love our families and live for them. But did you know that your family could help you earn better returns and save taxes? Here are 5 incredible ideas that you can implement easily.

Tip 1: Your parents and in-laws can help you earn higher returns after they retire

• Older people get higher interest rate: Senior citizens get higher rates on FDs – In India, fixed deposits and recurring deposits often give additional 0.25 to 0.5% interest rate to senior citizens.
• Super Seniors – There is no tax for senior citizens (ages 60-80) upto Rs 3,00,000 and for very Senior citizens (aged >80) upto Rs 5,00,000. So reach out to your parents and grandparents and open an FD in their name.
So gift or loan to your parents or in-laws. They can then invest this in an FD. Now you get two benefits: they can earn higher interest rate, if they are older than 60 years. Plus, if their income-tax slab is lower than yours, then the income tax on the interest earned will also be lower – whereas if you had invested it, you would have to pay more tax. If you would like to investing in your own name, but still enjoy tax benefits.Click here to learn how.

Tip 2: Benefits of joint-ownership of property

• Co-owning a house which you live in:
o Each co-owner can take upto Rs. 1.50 lakh principal and Rs. 2 lakh interest deduction on their incomes & salary. So, it is a good idea to have co-owners, as this can save a lot of taxes for your family. Whereas, if you are the only owner, the limit is capped at Rs. 1.5 lakh and Rs. 2 lakh interest only.
• Co-owning a house which is rented out :
o If interest paid is more than the rent received, each co-owner can claim a share of loss from house property. Here it makes sense to give higher share of ownership and loss to those who are in the higher tax slab. Because the loss from house property can be deducted from income, the person in higher tax bracket, will save more taxes.
• Having a lady co-applicant on the housing loan:
o Several banks offer lower interest rate for women borrowers. So, make the lady in your life a co-borrower. So if the home loan interest rate of 9.5% (its 0.05% less for women), with tax deductions, the effective rate can be as low as 8% depending on the amount of tax deduction you get under sections 80C and Section 24. India is a unique country where the after-tax home loan borrowing rate is close to deposit rates!

Tip 3: Paying rent to your parents

• If you live in your parents’ house or sibling’s house, you can get HRA benefit by paying them rent. Your parents/siblings can show the rent as income – treat the property as let out, and get full deduction for the interest paid on the loan. You can get HRA benefits. But remember to actually make the bank transfer of the rent amount, so that the transaction is clean.

Tip 4: Benefits of investing in your wife’s name

• Lower tax slab: If your spouse is working and is in a lower tax slab, then make FD and RD investments in your spouse’s name, and save income taxes.
• Spouse not working: But, if you spouse is not working, then your incomes will be clubbed and you have to pay tax on the full income. In this case, investing in your spouse’s name will not help. But income earned on income earned is not clubbed. Eg: If you invest Rs. 10 lakhs in your wife’s name, and earn Rs. 1 lakh, this 1 lakh will be added to your income. If she invests this Rs. 1 lakh again and earns Rs 10,000, this will be treated as income of only your wife

Tip 5: Create a Hindu Undivided family

If you have ever been skeptical about religion, this income tax rule might change your mind. As an undivided Hindu Family, you can apply for an additional PAN. The HUF is treated as a separate entity. The HUF would have its own tax liability and the income earned by the HUF will not be clubbed with individual income. Thus, you can save taxes. The point of caution is that all members of the HUF including the unborn child have equal right to the assets. An HUF is easy to setup, but difficult to administer over a period of time, as assets and members grow. Also the rules are not very crystal clear. Infusing capital into HUF and selling immovable assets of HUF are also not easy. Dissolving an HUF requires consent of all members. So while there are tax benefits to an HUF, it is important to consider the pros & cons well before formally creating an HUF.
The back-bone of our country is our family structure. Indian government has incentivized investing as a family by a helpful tax code. Take advantage. Grow your money, strengthen your family!

 

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