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EVEN AS EXEMPTION LIMITS FOR ALL CATEGORIES OF taxpayer have been increased, senior citizens have received a bigger helping of the tax breaks. The personal income-tax exemption limit for senior citizens has been increased by Rs 15,000 from the FY09 budget limit to Rs 2.4 lakh. Against this, women taxpayers and other individual taxpayers have seen a hike of Rs 10,000 each to Rs 1.9 lakh and 1.6 lakh, respectively.

While the tax breaks have been extended to individuals, their family members could take advantage of the increased headroom provided to them. Two ways of doing this are through housing loans and house rent allowance (HRA) although the limits under Section 24 of the Income Tax Act (gives tax relief on interest payments on housing loans) are pre-defined. This is possible because tax laws in India validate HRA claims on rent income paid by one relative to another, be it daughter, son, wife or husband.

For instance, a salaried woman with annual income of Rs 6 lakh, including an HRA of Rs 8,000 per month, can avoid tax to the extent of the HRA by claiming it as rental paid to parents with whom she resides. Apart from residing with one's parents, the rent must be more than 10% of the salary for the claim to be valid. On a monthly rent of Rs 10,000, she can save almost Rs 20,000 as HRA, over and above the tax saved for investments under Section 80C. However, the rent will add to her father's taxable income. Hence, the tax saving in this family is optimal if the father is a senior citizen, who enjoys the highest tax exemption in the family.

If both husband and spouse are high taxpayers, experts recommend they take a joint home loan. Let us assume a working couple, earning an annual income of Rs 8 lakh each, buys a house for Rs 55 lakh and opt for a loan amount of Rs 50 lakh at 10%. The annual interest outgo would aggregate Rs 5 lakh and the couple can claim a cumulative amount of Rs 3 lakh under Section 24. If the husband alone buys the property, the tax benefit on interest payments would have halved to Rs 1.5 lakh. However, co-ownership of the property is pre-requisite for both of them to claim tax benefits. Also, the tax benefits are realised in the same proportion as the ratio of the ownership of the property.

If the property is used for self-occupation, the tax benefit on interest is capped at Rs 3 lakh for the couple. But, if the property is rented out, there is no cap on tax benefits on interest rate, but the rental income will be added to the taxable income of the couple. "Usually, it is always beneficial to lease out an owned property in the first 5-6 years, since the interest outgo is the highest in the initial years. In such a situation, borrowers can optimally save on taxes due to the combination of housing loan and HRA benefits. However, the assumption here is that property prices will continue to show a steady rise," said Vaibhav Sankla, executive director at Adroit Tax & Investment Services.