Tips to save Tax

• Forming an HUF:Formation of HUF is an effective way of reducing the tax liability for an individual. Since HUF is treated as a separate assessee as per the income tax act, 1961 therefore by transferring some of his income to his HUF an individual can avail slab benefit as well as the benefit of deductions under section 80 for his own income as well as the income of HUF thus reducing the overall tax liability. Let us assume an individual is having an income of Rs. 10 lakhs and is also having an ancestral property which is on rent (Rs. 4,00,000 annually). Now if he decides to form an HUF then he can separately show his rental income as income of HUF thus availing the slab benefit as well as benefit of deductions under section 80 on his own income of Rs. 10 Lakhs and also on the income of HUF.
• Claiming of HRA as well as interest paid on home loan upto Rs. 1.5 lacs: Many of the salaried persons are not aware of the fact that they can simultaneously claim HRA as well as the interest paid on their home loan provided their house on which loan has been taken is in some other city. For e.g. if a person working in Gurgaon has bought a home in Delhi then he can claim both HRA (upto limit specified) as well as interest paid on home loan (upto Rs. 1.5 lacs annually).
• Pay rent to your parents: If you are living in your parent’s house you can pay them rent and can claim House Rent Allowance provided the property is registered in the name of either of your parent. Your parents will be taxed after allowing the standard deduction of 30% which means if you are paying  a rent of around 2 lakh a year, your parent will be taxed on Rs.1,40,000 which will be tax free in their hands. It gets better if the property is jointly owned by both the parents. In such a case you can divide the rent in between both of them hence splitting the tax liability.
• Education expenses of your children: Amount spent by you on the school fees of your children can also be claimed as a deduction from your overall income under section 80c (upto maximum limit of Rs. 1 lakh). The deduction, however, is not available for capitation fees/donation collected by the school or college. Also under section 80E of income tax deduction can be claimed on interest paid on education loan taken for higher education.
• Income arising from transfer of asset to spouse: In normal circumstances whenever an individual transfers any asset to his or her spouse for an inadequate consideration the income arising from the respective asset is clubbed in the hands of the person transferring the asset. However any asset transferred to the spouse before marriage or when the couple is no longer husband and wife at the time of transfer or accrual of income then no clubbing provisions apply. So, for all of you who are going to be married soon this could be a handy tool to save tax.