This article is the second in the series on how doctors can save income tax through tax planning at different Life stages. In the previous article on Tax planning strategies for Young Single Doctors, I have discussed the various ways where a young doctor can save his or her tax outgo by using the 4 golden rules. Those golden rules will be used at every life stage to do proper tax planning. Do read that article so you get clarity on the basics of strategies being advised.
Through this article, I will put across some more ways to save income tax through tax planning for a young doctor couple, with no kids.
How a doctor couple can save income tax through Tax Planning?
From a tax planning point of view, when a doctor gets married, it brings in one more tax file in a family, which means the division of income has found one more person. And this new person will also help us generate more tax-free income in the future.
Generally, a Doctor Marries a Doctor only, and if both of them keep practicing or remain active in the work-life for long then going forward there would be less scope of any tax saving as both would be in the highest income bracket.
However, it may be possible in the early years. Plus the arrangement made with proper planning does come up with its own advantages.
Below are some tax-saving ideas which doctors can use.
1. Create a tax file through Marriage gifts:
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Income tax act has exempted the gifts received in cash or kind on the occasion of marriage from gift tax purview, so you should make the most of it. A decent tax file for your spouse can be created if all the gifts received on marriage gets received in his/her name only.
But you have to be sure to keep records of all receipts and expenditure, done on marriage to have answers to any tax inquiry.
2. Create a Tax file through Gift/Loan:
If you do not want to use wedding gifts for this purpose or if you are already married now, then don’t worry, you have other options available. You may gift Your wife or loan her some amount to invest somewhere the returns of which will help her in generating a separate income for her.
Do keep in mind that such transactions attract clubbing of Income, and this is why your wife should invest in some tax-efficient investments.
Let’s understand with an example:
Husband gifts Rs 10 lakh to his spouse who’s a homemaker. The wife invests this amount somewhere and generates Rs 1 lakh in a financial year. Now as per clubbing provisions of income tax this Rs 1 lakh generated out of gift given by husband will be clubbed back in the income of husband and taxed accordingly.
But, If wife invests Rs 1 lakh in some other asset and generates Rs 20,000/- then this Rs 20,000/- will not be clubbed with husband and treated as wife’s income only.
Thus, one has to be sure while gifting, that money should be invested in the assets which generate tax-efficient income like Public provident Fund, Equity Mutual Funds, in some cases may be ULIPs, etc.
But, when the money is to be invested in some taxable assets then better to give her a loan.
3. Take benefit of exempted income:
Now you have one more person in your family which will help you generate tax-free income. You may invest in the Public provident fund up to the maximum limit in her name. or may go with any other Tax-Free Income Option
4. Use the tax exemptions to the full:
Take maximum advantage of savings u/s 80C, 80D, 80CCD, and others saving eligible for, so maximum taxable income should get adjusted in that. Like for e.g. you have invested your spouse’s fund in such a manner that it has generated Rs 4.75 lakh as taxable income, you can make it NIL by investing it properly in tax saving instruments.
If she has her own sources of income then that also needs to be invested in such a way so as to reduce the tax outgo on the Investment income.
5. Tax Benefits in Home Loan :
If you both have good tax files, then you may go in for a home loan as a co-applicant and co-owner and claim the benefit of Principal u/s 80c and Interest payments u/s 24.
Please note that this option needs to be exercised only if you are in need of your own home. Else buying Real Estate just for tax saving becomes a habit having long term repercussions. Doctors have special Love for Real estate, especially the practicing one.
You may also take a loan from each other for home purchase and claim tax benefit of interest payment u/s 24. This is one of the major advantages of creating different tax files in the family.
6. Business expenditure:
If you are into your own medical Practice or planning to start a new practice, plus if you have done proper tax planning and have created a good tax file of your wife, then you may take a loan from her account and take benefit of the interest payment as business expenditure. (Also Check: Financial Planning tips for practicing doctors, infographics)
However, whatever interest you pay to her will be considered as her Income.
Tax planning for Doctor Couple – Conclusion
While a new member helps in creating a new tax file in the family, precautions should be taken to avoid the clubbing provisions. Proper tax planning will be able to take care of all the grey areas.
Multiple tax files should be for the betterment and not increase the tax administration burden. and as I always say, your tax planning should support your overall Financial Planning, and not complicate it further.
If you have some other ideas which will benefit in tax planning for young married, then please feel free to share.