By Sreenivasulu Reddy
For dual-income households, the financial advantages can be significant, opening up more opportunities for saving and investing.
Traditionally, couples have been opting to split their investments to maximise the tax deductions. This includes joint housing loans, sharing rent payments, and dividing other tax-saving investments. By doing so, they could take advantage of various tax benefits available to individual taxpayers to the extent of the specified limits.
Let’s look at some of the deductions/ exemptions which are relevant under the old tax regime:
Splitting of rent payments to maximise House Rent Allowance (HRA) exemption, in case of rented accommodation.
With respect to Leave Travel Allowance, given that the exemption can be availed twice in a block of four years, couples have the option of making travel payments in alternate years so that exemption can be availed for all the four years.
Making investments towards tax-saving instruments like fixed deposits, equity-linked mutual funds, life insurance premium etc. and availing deductions under section 80C (as each individual taxpayer can avail the deduction up to Rs 150,000).
Utilising deduction under section 80D towards health insurance premiums (availing separate health insurance policies covering spouse and children, and an additional policy for the parents), as each taxpayer can claim up to Rs 25,000 for their own policy and an additional Rs 50,000 for parents, if they are senior citizens.
Contribution towards National Pension Scheme (NPS) under section 80CCD(1B) and 80CCD(2) for additional deduction. Donations to specified funds and charitable institutions can be claimed under section 80G, subject to certain limits.
New tax regime
With the recent enhancements in the tax slabs under the new tax regime, the amount of tax that an individual can save depends upon two broad factors — the tax regime chosen and the investments made for claiming deductions. Hence, couples may need to reassess their traditional approach regarding joint investments.
For instance, in case of an individual earning around Rs 2,475,000 annually, the break-even point for deductions is approximately Rs 800,000. This means that if your total deductions (including standard deduction, 80C, 80D, HRA, LTA, home loan interest, etc.) exceed Rs 800,000, the old tax regime will result in a lower tax liability.
If your deductions are less than Rs 800,000, the new tax regime is likely more beneficial.
Depending on the income levels and investments, couples have to analyse which regime will be beneficial for them to optimise the overall tax liability.
In summary, dual-income households generally have greater financial resources but should carefully consider their tax liability. By understanding the tax system and making informed decisions, couples can manage their tax and optimise financial opportunities.
The writer is tax Partner, EY India