De-Tax. Together, make it less taxing

‘Behind every working woman is an enormous pile of unwashed laundry’, goes a tongue-in-cheek saying. While that maybe true in some cases, many are doing a commendable job of juggling home and work adroitly.

Given the challenging environment for working women, it is quite surprising that this segment does not enjoy any special tax treatment. However, there are few provisions in the Income Tax Act that allows a married couple — where both are working — to optimise taxes by sharing their expenses.

Repay home loan together

When both spouses are working and plan to own a home, a joint home loan makes them eligible for a higher amount and a higher tax benefit.

Section 80C of the Income Tax Act allows deduction of principal repayment of home loan (total deduction limit available under this section is ₹1.50 lakh). Also, interest payments on home loans enjoy tax deduction under Section 24. For self-occupied homes, the interest deduction is up to ₹2 lakh a year, while for let-out properties, the overall loss from house property cannot exceed ₹2 lakh a year. In a joint home loan, each co-applicant is eligible for the deduction limits individually. Thus, the collective tax benefits will be higher than for a single applicant loan.

That is, the couple together are eligible to claim deduction for home loan repayment and interest payment up to ₹3 lakh and ₹4 lakh respectively. If both the spouses fall under a 20 per cent tax bracket, the tax saving would be ₹1,40,000 (excluding cess).

It is pertinent to note that each spouse can enjoy tax benefit only if he/she has contributed to principal and interest payment. Also, each spouse should have an ownership in the property to get the tax benefits.

Pay rent together

Meanwhile, if the couple are living in a rented house, splitting the rent between both can help save tax. While calculating the exemption of HRA (house rent allowance) under Section 10(13A), the least of the following three amounts is taken — a) HRA received; b) 50 per cent of salary if living in metros, otherwise 40 per cent of salary; c) rent paid in excess of 10 per cent of salary. Salary here means basic pay plus dearness allowance.

To maximise the tax benefit, the splitting of rent payment between both the spouses should be in a manner as to optimise the tax exemption of the spouse in the higher tax bracket. That is, the spouse in the higher tax bracket should pay the rent that will make him/her eligible for the maximum exemption allowed under the rules. The remaining rent can be paid by the spouse in the lower tax slab. See accompanying table for an example.

Note that, to get the tax benefit by splitting the expenses, the rent agreement and receipts should be in the name of both the partners.

Raise children together

In addition to the exemption on children’s education and hostel expenditure allowances, a deduction for the tuition fee paid by parents is available under Section 80 C of the Income Tax Act.

Tuition fees paid to recognised university, college, school or any other educational institution is eligible for deduction up to ₹1.50 lakh for each financial year for each parent. Therefore, even if the tuition fee paid is more than ₹1.5 lakh, the deduction could be availed by splitting the expenditure between both the parents.

In another case, even if the husband runs out of the 80C deduction limit due to repayment of home loan, payment towards insurance, provident fund and pension, the wife can pay the tuition fees and claim the deduction and vice-versa.

In this way, the overall tax outgo can be reduced if both the parents are working and contribute to paying fee.

Further, parents can claim deduction under Section 80E for interest paid on loan taken for higher education. As there is no maximum limit prescribed to avail of the deduction under this Section, the whole interest payment can be claimed by either of the parents.

Insure family together

Medical insurance premium paid for self and family is allowed for deduction under Section 80D up to ₹25,000. Limit under Section 80D is also available for each individual separately.

While each spouse is eligible to claim deduction to the extent of medical insurance paid, subject to the limit stated above, both the spouses together are eligible to claim deduction up to ₹50,000.

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