Skip to main content

Split Your Rent and Save on Income Tax

 


Go through the procedural hurdles that can prevent you from claiming tax gains
                                      
Sharing is caring is saving. If you extend the habit of sharing to split tax benefits with your spouse, it would result in higher tax savings. Keep this in mind while declaring investments and expenses to your employer for the new financial year. The deductions you claim will decide how much tax your employer will deduct from your monthly pay. Those living as tenants should avail of the tax exemption offered on house rent allowance (HRA), which forms a sizeable component of the salary. In some circumstances, you can claim the entire HRA for which you are eligible as tax-exempt. But, if both you and your spouse are eligible for HRA as part of your salaries, it may work out better if you split the claim. Here's how.

When splitting works better

While calculating HRA exemption, the employer considers the least of the following amounts:

(1) HRA received

(2) 50% of basic salary if living in metros, otherwise 40% of basic and

(3) rent paid above 10% of basic salary.


An individual can claim the entire HRA as exemption if the rent paid works out to at least 60% of the basic pay in metros, and 50% otherwise. In other cases, the exemption will be less than the actual HRA component of the salary, implying that the tax savings will also be less.

To optimise your HRA exemption, consider splitting it with your spouse. If your spouse is also working and is eligible for HRA, then you save more tax by splitting the HRA claim. Consider a married couple paying a monthly rent of `24,000, with the husband earning a basic pay of `24,000 and the wife `16,000. If the husband stakes claim to the entire rent paid for HRA exemption, he will be able to save `14,400 in taxes for the year. His wife will have to pay tax of `9,600 on unclaimed HRA. However, if the couple were to split the HRA claim 50:50 between themselves, the tax saving would be `21,120 (see chart).

How much you should split

A couple may choose to split the rent in any proportion depending on their salary structure to save more tax. The question is in what proportion should one split the HRA claim? If the couple is not in the same tax slab, the partner in the higher tax slab should ideally claim a larger chunk of the rent paid for exemption. The rent should be split in such a way that the spouse in the higher bracket pays 1.2 times or 120% of HRA received by him as rent and the balance rent is paid by the person in the lower tax bracket. This will help maximise the HRA exemption for the spouse in the higher tax slab. For the same couple mentioned earlier, if the husband is assumed to be in the 20% tax bracket, a 50:50 split in rent payment would translate into tax savings of `32,640. However, if the husband were to claim rent payment of `14,400, while the balance `9,600 is claimed by the wife, the total tax savings for the couple would be `38,400. Even when both partners are in the same tax slab, but one partner is eligible for higher HRA, it would be more tax-efficient for the latter to claim a higher contribution towards rent.

Practical hurdles

There are, however, some hurdles involved in the plan. To claim the HRA exemption, both partners need to show a rent receipt in their name. This can either be two different receipts with respective amounts or a single receipt for the full amount bearing both names. In the latter case, legally you are free to claim exemption in any proportion. However, some employers may not agree to this arrangement, so you must check with your employer before filing the investment declaration. To be on the safe side, ask the landlord to specify the proportion in which the rent is paid by both in the common receipt. If you want to split HRA claim, it is better to have documentation that specifies sub-division in rent payment. No employer will accept a rent receipt made out only in the name of the spouse. Also, the landlord may only be able to include both names in the rent receipt if the rent agreement mentions both.

A rent receipt may not be enough. It will suffice at the time of claiming HRA exemption from your employer, but if the taxman picks up your income tax return for scrutiny, both partners must be in a position to prove actual payment of the rent amount claimed. This is not a problem where both partners are paying their share separately to the landlord. But in many cases, one of the partners is likely to make the entire rent payment to the landlord. In such a scenario, the spouse can pay hisher share to the other, who can in turn pay the entire sum to the landlord.The only issue is that such a transfer to the spouse should be in the form of cheque or bank transfer, not cash.




 
Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Popular posts from this blog

Retirement planning from a long-term perspective

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds     `HOW green was my valley'. This title comes from a movie I had watched many years ago. A little boy's journey into adulthood and the story of a Welsh valley's turn of-the-century descent from pristine paradise to despoiled coal mining.   I thought of the title because it is comparatively reflective of a person's life ­ the glorious years when he is earning and the sun down years when he is not having his regular job and, hence, his living standards comes down. The reason is a combination of things. Inflation of food items, transport, increase in health related costs in the later years of life and increase in expenses in almost all basic amenities of life. In India, the social security system is almost non-existent. In some states, wherever it is available, the scales of benefits are extremely modest...

Investment Strategy - What is Sector Rotation Theory?

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   The economy goes through cycles : it expands for a few years and then contracts. Study of historical data suggests that different sectors tend to perform well on the stock markets during different stages of the economic cycle. While history never repeats itself exactly, some broad patterns tend to recur. Investors can take advantage of the sector rotation theory to move their money from those sectors that have seen their best times to those that are likely to do well in future.   The person who developed the sector rotation theory is Sam Stovall, chief investment strategist at Standard & Poor's. He developed this theory by studying data on economic cycles going as far back as 1854 provided by the National Bureau of Economic Research ( NBER ) of the US.   When trying to correlate stock-market perfor...

Factors Affecting Silver Rates in India

  Factors Affecting Silver Rates in India There are a lot of factors at play that impact silver prices in India. Even though silver rates have shown a steady increase over the last two decades, the historical trends should not be taken as a benchmark when considering future price volatility. Investment in silver as a commodity has gained steam in the country, and investors need to factor in various variables if they are to make decent profits from silver in the short/long run. Large investors:   The silver market is much smaller than the gold market. As such, large investors or traders can potentially influence silver prices. A point in case here is Warren Buffet buying 130 million troy ounces of silver in 1997 at $4.50/ounce, which impacted market prices. Oil prices:   Mining of silver is an energy-intensive process, and so silver prices are correlated with oil prices, the primary energy source in today's world. Also, imported silver requires a strong logistics platform backed by ...

LIC's JEEVAN SHIKHAR

  LIC's Jeevan Shikhar is a participating, non-linked, saving cum protection single premium plan wherein the risk cover is ten times of Tabular Single Premium. The proposer will have an option to choose the Maturity Sum Assured. The premium payable shall depend on the chosen amount of Maturity Sum Assured and age at entry of the life assured. This plan also takes care of liquidity need through its loan facility. The plan will be open for sale for a maximum period of 120 days from the date of launch. 1.   BENEFITS   : a) Death Benefit: On death during first five policy years: Before the date of commencement of risk   :   Refund of Single Premium without interest. Single Premium mentioned above shall not include any extra amount if charged under the policy due to underwriting decision and taxes. After the date of commencement of risk   : "Sum Assured on Death" equal to 10 times the tabular single premium shall be payable. On death after completion of five policy years but b...

CNX Midcap vs BNP Paribas Midcap Fund

BNP Paribas Midcap Fund - Invest Online   Te  performance of BNP Paribas Midcap Fund  – which has across the last 3 years generated superior returns over the benchmark – especially when the markets have gone down the fund has handsomely outperformed the benchmark preserving the capital of the investors. The fund has been able to do this only due to the superior stock selection process ( BMV approach) that is diligently followed at BNPP.   Highlights of BNP Paribas Mid Cap Fund:   Investment Objective : BNP Paribas Mid Cap Fund gives an investor exposure to invest in the various quality midcap stocks. The fund also has some exposure to large as well as small cap stocks.   Investment Approach : BMV ( Quality and scalability of Business →Good Management → Reasonable Valuation ) with Bottom-up stock picking.   Most of the investors are way happier if the fund that they have invested in is a significant Outperformer in tough times than in Good ti...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now