Saving taxes can be a challenge sometimes. However, the process can be easier if the burden can be shared with your spouse, which will enable you to save significant amounts in taxes.

Saving taxes can be a challenge sometimes. With limited exemption for each investment, one may have to make multiple investments and still end up paying a lot of tax. However, the process can be far easier if the burden can be shared with your spouse, thus saving significant amounts in taxes.

You can have joint money-management and investment plans with your spouse, and the taxes can be claimed in proportion to your exposure. With rising living costs and increase in the number of double income families, such investments can significantly reduce tax burden for a family. It can also help address the problem of taxation on returns on investments.

Here are some of the best options couples can opt for to save tax:

Joint Home Loan

This is a boon for couples looking to purchase a home together, as home loans are not only a very popular way to save tax, but when availed as a couple, can double the tax benefits. But remember: both have to be eligible for the loan, and they will receive tax benefits in the ratio the loan burden is shared.

So, for interest exemption under Section 24B, an individual is allowed up to Rs 2 lakh in exemption towards interest payments on a loan for self-occupied home. This limit for couples can be up to Rs 4 lakh, i.e. Rs 2 lakh individually, assuming they’ve co-borrowed in a 50:50 ratio. The same applies for principal calculation under Section 80C as well, where the couple can jointly claim Rs 3 lakh, i.e. Rs. 1.5 lakh individually. Combined they can save up to Rs 7 lakh in a year on a home loan.

However, if a person buys a property in the name of his spouse, who has not contributed any money, the same provisions are not applicable.

Joint Life Insurance Policy

Life Insurance is still one of the most popular ways to save tax in India. If both husband and wife take a joint term policy, both can individually claim exemption for the same under Section 80C. The premium on such plans are calculated as per the ages of the husband and wife. Therefore, the individual premium share of each spouse may be linked to their age. That is the amount they can claim for tax deductions under Section 80C.

HUF

Hindu Undivided Family or HUF is a traditional way for families to manage their financial affairs and save some taxes along the way. HUFs are popular amongst business communities in India. A Hindu family can come together and form an HUF. Buddhists, Jains, and Sikhs can also form an HUF. It has its own PAN, bank account and files tax returns independent of its members.

Deductions under Section 80 and other tax exemptions can be claimed by the HUF in its income tax return. The HUF needs to have a legal deed, which will contain details of its members and the business of the HUF.

This is helpful in many options like earning rent from self- or jointly-owned properties, as the tax liability gets absorbed by the HUF and not by individual members. Even for Section 80C, if investments are made in the name of the HUF or a member, it will be eligible for a separate exemption of up to Rs 150,000. Similarly, since an HUF is an entity in itself, each tax-saving section can be explored for exemption, provided the same investments are not reflected in the individual tax filing. For instance, if a man has invested Rs 50,000 in life insurance for the entire family, he can show it at only one place. It can be split between his individual filing and the HUF filing, but combining both, the amount cannot exceed Rs 50,000.

At present only the leading male member is allowed to form an HUF and even if the female member earns more. In case the male member dies, the senior-most female member can take charge as the head of the HUF, even if other male members exist, as ruled in a landmark judgment in January 2016 in the Delhi High Court.

But be very sure about getting an HUF arrangement, as it can only be dissolved by partition. All members have to agree to dissolve the HUF, and when the partition happens, assets are distributed among members, which can sometimes lead to disputes and legal hassles.

Plan Investments As Per Slab

While the government may offer limited options for couples to save tax, they can plan their investments in a way that the overall tax liability of the household decreases. For instance, if the wife earns more than the husband and is in the 30% tax bracket, it is but natural for more tax investments to be made in her name from her funds. This way the husband, who may be in the 20% bracket, can focus on general wealth creation and savings instead of focusing only on tax saving. For instance, the husband can hold options like FD where the interest taxed for the deposit will also be lesser, as he is under the 20% bracket.

At the end of the day, both have to decide what their priorities are and how their overall and individual tax liability can be reduced to benefit their future in the long run.