MOST 25-year olds I know run a mile when they hear the word marriage. Why would I want to give up freedom for a life of bondage, bickering, tantrums and responsibility, they ask.
The answer lies simply in this fact: it is good for the bank account!
How? With some smart manœuvres, you can reduce taxes substantially through your spouse. This works especially if you are in the highest tax bracket and your significant other does not have a taxable income.
At the risk of being labelled a chauvinist, let us assume (only for the sake of argument), that the wife stays home and the husband earns.
First, let's do some ground work. Let's say there are two separate joint accounts, one for husband/ wife and the other for the wife/ husband. Bear with me if this sounds pointless to you right now. But it is important!
1. Let her invest
So we have the wife running a super efficient home and bringing up beautiful kids. But that doesn't stop her from making some shrewd investments in her spare time.
Why don't you give her some money which she can invest smartly for your family?
Are you asking 'why'? Simple. To save you a chunk of tax. This is how it works.
Step 1: You start a tax file in her name.
Step 2: You loan her money which you would have otherwise invested in your name.
Step 3: She invests this money.
Step 4: Any income she earns up to Rs 1.45 lakh (Rs 145,000), is non-taxable. That means, assuming a rate of return of around eight per cent, she can make investments of over Rs 15 lakh (Rs 1.5 million), which would all be tax free.
Step 5: You have now essentially saved 33 per cent tax on the income she has generated in her name. Were it in your name, it would have been taxed due to your already high tax bracket.
There is a catch. You cannot transfer money to her as a gift. Because the income on a gifted amount will clubbed in your hands for tax. How do you work around this situation? Caught you! You missed what I said earlier. I said, loan the money to her.
Technically, an interest-free loan is possible, but it is better to have a contract by which you charge a nominal rate of interest (say, the savings bank rate). So she earns interest on the investments and pays you interest on the loan; the money stays in the family!
What you have just done is made an income of over Rs 15 lakh (Rs 1.5 million), tax free! And, of course, made your wife rich!
2. Share the home
If you are reconsidering the idea of marriage, here's sweeter news. If you buy a home today, it is almost certain that you will take a home loan. The trick is to opt for a joint loan.
This is how it works.
Step 1: Buy the property with both having an equal share. (This not only ensures you get tax breaks, it also prevents you from being thrown out if you forget your anniversary!)
Step 2: You take an equal loan. And you pay the interest and principal payments separately from your individual bank accounts. (Fixed or floating rate loan? What's better now? )
Step 3: Each of you is now entitled to an interest deduction of up to Rs 1.5 lakh (Rs 150,000), under Section 24 of the Income Tax Act, and a principal deduction of Rs 1 lakh (Rs 100,000), under the new
Section 80C.
Now, you have not only made your wife incredibly happy with her share of property, but between the two of you, you have managed to save tax on Rs. 5 lakh (Rs 500,000) worth of income!
3. Bring on the kids
So you marry. And then come those bundles of joy that demand midnight feedings and constant diaper changes. But kids reward you with more than just toothless smiles.
They actually help you save some tax. Your little star is a tax saver already.
You can earn an income of Rs 1,500 for each child totally tax free. Say you have two children, making it Rs 3,000. Capitalise this by, say, seven per cent, and you have just made an income on over Rs 40,000 totally tax free.
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