Alternative Tax-Saving Methods in India Beyond 80C Deductions

Income tax planning becomes crucial in order to achieve one’s financial goals, and while some find it tedious, it is imperative to understand the nuances involved, along with the various existing tax-saving instruments. According to the Income Tax Department, for the Assessment Year 2024-25, over 7.8 crore taxpayers filed income tax returns till 31st July, 2024, reflecting a steady increase in tax compliance and awareness. However, if one’s annual taxable income places them in a higher tax slab, they can consider unconventional methods to save tax. These new tax saving methods also provide good returns on investment, and help taxpayers achieve their financial and tax saving goals.

Filing ITR As Hindu Undivided Family (HUF)

Under the Hindu Law, a Hindu Undivided Family (HUF) consists of people who are lineal descendants of a common ancestor, and the family also includes their spouses and unmarried daughters. Furthermore, it is also possible to show income as a gift from a member of the family while filing taxes, and not pay tax on the said income.

House Rent Allowance (HRA) Deduction

Taxpayers who currently do not own a home, and stay with their parents can claim house Rent Allowance (HRA) on their income. To claim HRA deduction, one has to show that they pay rent to their parents every month, which can be done by either keeping a record of the banking transactions, or saving rent receipts.

Investing Through Parents Who Are Senior Citizens

Senior citizens enjoy additional tax breaks, as they can earn up to Rs. 3 lakh tax-free income. Thus, if a tax payer’s parents have low income to their credit, the taxpayer can divert their income from investments in their own way, whether it is through ELSS or other mutual funds. Thus, if one generates an interest income of Rs. 1 lakh, they can redirect it to their parents, instead of accumulating it to their taxable income for that particular financial year.

Furthermore, giving money to one’s parents is tax-free, and the amount can be invested in other schemes targeted towards senior citizens, such as the Senior Citizen FD, or Senior Citizens’ Saving Scheme. This not only reduces their tax burden, but also helps in building a corpus for their parent’s retirement, or earn higher gains for themselves.

Reinvesting Gains

Instead of opting for new tax-saving investments, taxpayers can use the amount from existing investments to reinvest in new tax saving methods. For instance, one can recycle their ELSS investments by reinvesting their money in another ELSS fund, or in a different tax-saving investment after the mandatory lock-in period of three years.

Paying Parents’ Insurance Premium

Under Section 80D of the Income Tax Act, 1961, taxpayers are eligible to claim a deduction up to Rs. 25,000 every financial year for health insurance premium instalments. It is also possible to add to the existing benefits by paying for one’s parents’ medical insurance premiums. If one’s parents are up to 60 years old, it is possible to claim an additional deduction of Rs. 25,000 while paying their premium. However, if one’s parents are above 60 years of age, they can claim up to Rs. 50,000 on their insurance premium payment.

Sukanya Samridhi Yojana

The Sukanya Samridhi Yojana scheme is targeted towards parents who wish to save for their daughter’s future, and offers attractive interest rates (higher than a PPF), and is capped at Rs. 1.5 lakh. Parents can open a scheme in private banks or in post offices as a savings account in the name of their daughter. Furthermore, the minimum investment amount is Rs. 1,000, and the girl should be less than 10 years old while opening the scheme.

Before opting for new tax saving methods, it is also important to choose a policy that aligns with one’s financial goals, savings horizon and risk appetite. For instance, the provides policyholders with the flexibility to modify the policy according to their needs. The policy offers guaranteed benefits that are payable on maturity, and provides life cover for the entire term, while the premium is only paid for a limited period. Furthermore, policyholders are also provided with the flexibility to choose a payment term that aligns with their payment horizon.