45-Year-Old Earning 40 Lacs Seeks Tax-Saving Advice: Is HUF a Good Option?

Ans: FIrstly, please ascertain whether the Old Tax Regime is beneficial to you or the New Tax Regime. If it is the new one, you do not have to bother about saving any income tax as there are hardly any deductions available in it but the tax rates are lower. If Old Tax Regime is beneficial to you, then the tax benefits are available to you only if there are special circumstances for you, eg, you take a home loan and loan interest saves a bit of tax under IT Section 24(b), education loan under Section 80E, disability of self and/or dependents under Sections 80DD, 80DDB, and/or 80U, etc.

Ans: Unfortunately salaried people do not have many options, but if you have a housing loan or an education loan then you can get additional benefits. Donation is always an option u/s 80G.

Please consult with your CA once.

Ans: With a yearly income of Rs. 35 lakhs, you fall into a higher tax bracket, so it's essential to optimise your tax-saving strategies.

Let's explore various options to help you reduce your taxable income and increase your savings.

1. Utilising Section 80C Deductions
Section 80C offers deductions of up to Rs. 1.5 lakh on various investments and expenses. Given your salary, it's vital to ensure you're fully utilising this limit.

Provident Fund (PF) Contributions:

Your monthly PF deduction of Rs. 28,000 amounts to Rs. 3.36 lakhs annually. However, only Rs. 1.5 lakh of this can be claimed under Section 80C.
National Pension System (NPS):

Contributions to NPS are eligible for an additional Rs. 50,000 deduction under Section 80CCD(1B). This is over and above the Rs. 1.5 lakh limit under Section 80C.
Home Loan Principal Repayment:

The principal repayment of your home loan is also eligible for deduction under Section 80C. Ensure you include this when calculating your total 80C limit.
Other 80C Investment Options:

If you have not exhausted your Rs. 1.5 lakh limit under Section 80C, consider investing in other eligible options such as Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), and life insurance premiums.
2. Leveraging Section 24 for Home Loan Interest
Interest Payment Deduction:
You can claim a deduction of up to Rs. 2 lakh on the interest paid on your home loan under Section 24(b). You've mentioned an annual interest payment of Rs. 2 lakh, which you can fully utilise to reduce your taxable income.
3. Maximising Health Insurance Benefits under Section 80D
Health Insurance Premium:
You are already paying a premium of Rs. 50,000 for medical insurance. Under Section 80D, you can claim a deduction for health insurance premiums up to Rs. 25,000 for yourself, spouse, and dependent children.
If your parents are senior citizens, you can claim an additional deduction of Rs. 50,000 for their health insurance premiums. If they are not senior citizens, the limit is Rs. 25,000.
4. Additional Deductions under Section 80E for Education Loans
Education Loan Interest:
If you have an education loan for yourself, spouse, or children, you can claim a deduction on the interest paid under Section 80E. This deduction is available for up to 8 years or until the interest is paid off, whichever is earlier.
5. Contributing to the National Pension System (NPS)
Additional Deduction for NPS Contributions:

Besides the Rs. 50,000 deduction under Section 80CCD(1B), you can also claim a deduction for your own NPS contributions under Section 80C, as mentioned earlier. This can be part of your Rs. 1.5 lakh limit.
Employer Contribution:

If your employer contributes to your NPS account, it can be claimed as a deduction under Section 80CCD(2). This is an additional deduction and does not fall under the Rs. 1.5 lakh limit of Section 80C.
6. Donations and Charitable Contributions under Section 80G
Eligible Donations:

Contributions to certain charitable organisations and relief funds are eligible for deductions under Section 80G. The deduction percentage varies depending on the organisation and the donation amount.
Claiming Deductions:

Ensure you have valid receipts and the organisation is eligible under Section 80G before claiming the deduction. This can help reduce your taxable income while contributing to a good cause.
7. Claiming Deductions for Savings Account Interest under Section 80TTA
Interest on Savings Account:

If you earn interest on your savings account, you can claim a deduction of up to Rs. 10,000 under Section 80TTA. This deduction is available for individual and HUF taxpayers.
Interest on Fixed Deposits (FDs):

Interest on FDs is fully taxable. However, senior citizens can claim a deduction of up to Rs. 50,000 on interest income from FDs, savings accounts, and post office schemes under Section 80TTB.
8. Avoiding Common Tax Mistakes
Accurate Record Keeping:

Maintain records of all your investments, insurance premiums, home loan statements, and other eligible expenses. Accurate records ensure that you claim all possible deductions and avoid unnecessary tax liabilities.
Tax Planning Throughout the Year:

Tax planning should be an ongoing process, not just something to consider at the end of the financial year. Regularly review your investments and expenses to maximise your tax-saving opportunities.
9. Final Insights
By strategically planning your investments and expenses, you can significantly reduce your tax burden. Ensure you are fully utilising deductions under Sections 80C, 80D, and 24(b) for your provident fund contributions, home loan interest, and medical insurance.

Consider contributing to the National Pension System (NPS) for additional tax benefits and explore other options like charitable donations under Section 80G. With careful planning, you can achieve substantial tax savings and improve your financial well-being.

It's always a good idea to consult with a Certified Financial Planner to tailor these strategies to your specific situation. They can provide detailed guidance based on your financial goals and current tax liabilities.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: 01. You have already covered almost all tax saving options (subject to minimum NPS payment of Rs.50,000.00 yearly).
02. You can work out your tax liability under both new & old regime & opt for the tax regime, where your tax liability is minimum.
Most welcome for any further clarification. Thanks.