New Delhi: The deadline to file Income Tax returns is approaching on July 31, 2024. Taxpayers are in a hurry to secure refunds for taxes paid in the last financial year. To avoid the last-minute rush there are several strategies taxpayers can employ to save on taxes. To opt for long-term investment plans such as the National Pension System (NPS), Employees’ Provident Fund (EPF) Equity Linked Savings Scheme (ELSS), Post Office Senior Citizen Scheme (SCSS), and fixed deposits (FDs) can provide notable tax benefits.
Contributing to these long-term investment schemes can help you save up to Rs 1.50 lakh in a financial year. However, there are other ways to save on taxes as well. Among them one of the effective method is to utilise the house rent allowance (HRA) benefit which can even include paying rent to your wife. This strategy is particularly useful for those who want to make a part of their salary tax-free under HRA provisions. (Also Read: Paytm Launches ‘Health Saathi Plan’ For Merchant Partners At Just Rs 35 Per Month)
How Can You Obtain the Benefit?
Rent Agreement:
– Create a valid rent agreement with your wife. (Also Read: Koo, India’s Social Media App, Is Shutting Down After Acquisition Talks Fail)
– Clearly state the rent amount and other terms in the agreement.
Proof of Payment:
– Pay the rent through a bank transfer or a cheque.
– This ensures you have proof of payment.
HRA Claim:
– Check Actual HRA in Salary: Verify the amount of HRA provided by your employer.
– Calculate Rent Paid and Balance Amount: Consider the rent paid and subtract 10 per cent of your basic salary to determine the balance amount.
– Apply the Appropriate Percentage: If you live in a metro city, you can claim 50 per cent of the rent paid. If you live in a non-metro city, you can claim 40 per cent of the rent paid.
How Much Tax Can You Save?
If your monthly salary is Rs 1,00,000, which includes Rs 20,000 HRA, and you pay a monthly rent of Rs 25,000 to your wife, here’s how the calculation works:
– Annual HRA: Rs 2,40,000
– Annual Rent Payment: Rs 3,00,000
– 10 per cent of Basic Salary: Rs 1,20,000
HRA Exemption Calculation:
Annual HRA: Rs 2,40,000
Rent Paid – 10 per cent of Basic Salary: Rs 3,00,000 – Rs 1,20,000 = Rs 1,80,000
50 per cent of Basic Salary (in metro cities): Rs 6,00,000 (50 per cent of Rs 1,00,000 x 12 months)
Out of these three amounts, the minimum amount is Rs 1,80,000, which you can claim as tax-free HRA.
Criteria to Legally Claim HRA:
– Genuine Rent Agreement: Ensure that the rent agreement is legitimate and free from any fraudulent activity.
– Proof of Payment: Maintain proof of rent payment through a bank statement or cheque payment.
– Wife’s Income Tax Return: Your wife must show the rental income in her income tax return filing.
Paying rent to your wife can be an effective way to save tax, but it must be done carefully and in compliance with all legal procedures.