SynopsisYou and your partner can maximise wealth by joining financial forces. For example, if living on rent, you both can save more tax when availing HRA exemption. Taking a home loan jointly can make a big difference. Here’s how the two of you can boost money matters.
Your life partner shares your joys and sorrows, stands by you in times of need and offers support when you need it most. Why not extend this togetherness to your finances as well? Couples stand to gain more if both husband and wife make a combined effort. Whether they invest to maximise their tax savings or secure protection at lower cost, take a joint home loan or add heft to retirement income, couples can boost their finances by joining forces. Here are a few ways they can work together to get a leg-up in money matters.
Maximise tax benefits
It’s common for people to invest in the name of a spouse with no or low income so that the income from the investment escapes tax. Also, many individuals are not able to fully exhaust the tax saving investment limits because they don’t have enough liquidity. The most common (and obvious) way out is to take money from one’s partner to invest in tax saving options.
But tax experts advise caution when you do this. Income from investments made out of gifts from a spouse is liable to clubbing and gets added to the income of the giver. To avoid this, the gifted money can be put in tax-free options such as PPF and insurance policies or even ELSS funds where gains of up to Rs 1 lakh are tax free. Since the income from these options is tax free, it will not add any tax burden on the giver. The other way out is to give a loan to the partner. “Clubbing provisions do not apply if the money is given as a loan,” explains Sudhir Kaushik, Cofounder and CEO, Taxspanner.
The strategy could change according to circumstances and couples should get their tax math right to optimise the benefits. Imagine a scenario where the husband earns more than Rs 10 lakh a year (30% tax bracket) while the wife makes less than Rs 10 lakh (20% tax slab). If he hasn’t got enough to invest in NPS for additional tax savings, it makes sense for the wife to lend him some money even if that means she will not fully utilise her Rs 1.5 lakh limit under Sec 80C.
Now imagine a scenario where the wife’s net taxable income after all deductions is Rs 5.2 lakh. If she is able to bring her income down by Rs 20,000, she will save over Rs 17,000 in tax by escaping the tax net. Then it will make more sense for him to lend her money to claim a further deduction of Rs 20,000.
Dividing the HRA
Living on rent? As a couple, you can also save more tax when availing tax exemption on HRA. If both husband and wife get HRA as part of the salary, split the claim to optimise the tax benefits. Consider a couple paying a monthly rent of Rs 32,000, with the husband earning a basic pay of Rs 36,000 and the wife Rs 24,000. If the husband stakes claim to the entire rent paid for HRA exemption, he will be able to save Rs 64,800 in tax but his wife will pay Rs 28,800 tax on her HRA. However, if they split the HRA claim, the tax saving could be Rs 87,840.
“Split the rent in such a way that the spouse in the higher bracket claims higher exemption. This will help maximise the HRA exemption for the spouse in the higher tax slab,” says Kaushik.
To claim HRA like this, both partners need to show a rent receipt in their name and the lease deed should duly mention this. In most cases, however, one partner pays the entire rent. In such situations, the other partner can pay his or her share to the partner. Make sure that this is done through a bank transfer or cheque, not in cash.
Taking joint insurance
For many working couples, it is not sufficient if only the primary breadwinner is covered under a term plan. The spouse also needs a life cover, as the economic impact of death of either spouse can be severe on a nuclear family. Instead of opting for a separate life insurance policy for the spouse, a couple may consider taking a joint life term policy. As the name suggests, a joint life cover offers life protection for both under the same policy. The sum assured for the primary and second policyholders would vary depending on the policy. Typically, the spouse is covered for up to 50% of the sum assured of the primary policyholder.
A joint life policy also allows the family to cover the life of the non-working spouse or a homemaker. This can be a huge relief when considering the added burden that is placed on the sole working partner providing for and taking care of the children. PNB Metlife Mera Term Plan offers a cover of up to Rs 25 lakh for homemakers. A joint policy works out cheaper than buying two separate policies for each partner. However, this varies across companies.
There are multiple variants of the joint life term plan. Some policies offer payout on death of either one of the two insured, after which the policy ends. This can leave the surviving partner without any life cover. You may be better off buying two separate covers instead. Santosh Agarwal, Chief Business Officer, Life Insurance, Policybazaar insists a joint life term cover is not suitable for a working couple. “Since the cover for the second life is restricted, it makes sense to buy separate insurance plans for adequate coverage.”
However, there are dual payout policies that continue to offer protection to the surviving spouse after the partner’s death. Some offer a regular payout to the surviving partner in addition to the death payout. Others waive the premium for the bereaved spouse, though the premium is higher.
Apart from the life cover, couples may also consider bundling the health cover under a single family floater policy. The same benefits of convenience and lower premium will accrue with a joint health plan.
Take a joint home loan
Many newly married people think of buying a house, but finances are a hurdle. Even if the primary breadwinner takes a home loan, it may not help. It is here that the joint effort by both partners can really make a difference. The combined incomes of husband and wife will boost their home loan eligibility. Some lenders even offer concessional interest rates for women borrowers and many states have lower stamp duty fee for women and couples.
The best part is that a joint home loan can lead to more tax benefits. An individual is allowed up to Rs 2 lakh deduction for home loan interest for a self-occupied house. By borrowing jointly, a couple can effectively claim a deduction of up to Rs 4 lakh. “Apart from enabling higher loan eligibility, a joint home loan allows you to split tax benefits with your spouse for higher rewards,” asserts Kaushik.
This can be particularly helpful for higher ticket size loans. In the initial years of repayment when the interest component forms a large chunk of the EMI, the total interest burden can comfortably cross Rs 2 lakh in a year. In this case, both husband and wife can claim deduction on interest payment.
Besides the lower interest rates and added tax benefits, joint home loans also provide security to the female partner if the property is jointly owned. “In case of breakdown in the relationship, one can avoid being frozen out if there is identifiable contribution of EMIs whether from a joint or separate account.” says Deepti Goel, Associate Partner, Alpha Capital.
Maximise retirement income
For a retired couple living off accumulated life savings, maximising income options is paramount. If not receiving regular pension payouts, there are only few other avenues to generate regular tax-free income. The Senior Citizen Savings Scheme and Pradhan Mantri Vaya Vandana Yojana are two of the best available alternatives in this space. However, both come with restrictions on how much amount can be invested. The maximum amount that can be invested in each is Rs 15 lakh per individual. At prevailing rate of 7.4% on both, retirees can earn up to Rs 27,750 interest per quarter under SCSS and Rs 9,750 pension per month through PMVVY.
Couples can squeeze more out of these options by separately investing the maximum amount under each. “If both partners utilize the entire limits under SCSS and PMVVY accounts, it will allow for maximising tax-efficient income after retirement,” contends Amol Joshi, Founder, PlanRupee Investment Services. With Rs 30 lakh invested in both SCSS and PMVVY, a retired couple can effectively fetch interest income Rs 55,500 per quarter and a pension of Rs 18,500 per month, respectively.