However, apart from these known ways, there are few other methods which can be resorted to for getting your tax liability lowered. Some of them have been detailed herein:
1. Gift money to a dependent spouse: You can gift money to your spouse and if the sum is invested then any income from it shall be clubbed in your total income for the purpose of computation of tax.
So, the right course of action to avoid tax is to invest the amount in some tax free instrument, such that no tax implication arises from the investment when it is clubbed to your income as the income is already tax-free.
Later, this amount can be re-invested by your spouse and any income generated from it will not be clubbed in your income then as the rule of clubbing applies only to the first level of income and this income shall now be treated as your wife's and not yours.
2. Gift money to adult child: Money can also be gifted to an adult child as the provision of clubbing of the income from such gifted money to your income no longer applies and hence no tax implication.
This is because any amount or income realized from such gifted money will be of the adult child and shall be eligible for basic tax exemption limit.
3. Invest in Parents name: In case you fall in the high income tax bracket and either or both of your parents do not earn high income, you can invest in their name to earn tax-free income. Income from the amount gifted to parents is not clubbed to your income.
4. Provision of indexation benefit can be used to nullify tax liability: Investment in debt funds or debt-oriented Monthly Income Plans for three years time shall reap a return @ 10-10.5% per annum.
And, the indexed cost of acquisition in respect of the investment by the time your investment is set to mature will help you bring down your tax liability to zero.
It is to be noted that such a benefit is not available in case of investment in bank fixed deposits.
5. Formation of Hindu Undivided Family or HUF: The formation of HUF arrangement works well for individuals who are in the course of inheriting financial assets as well as have income from ancestral property.
So, as the inheritance can be diverted to the account of HUF, tax liability of an individual taxpayer due to income from such assets shall not increase.