Most taxpayers are looking for indirect methods to save taxes. Investing in one’s own assets in your own name will make you liable to more taxes and increase the tax bracket. One way out to save taxes is by investing on children and parents. Investing in your children’s name or parents name will give you high return on investment as well as save your taxes.
1. Deductions under Section 80 C
Section 80 C of the Income Tax Act provides deductions by investing in the name of children. To earn high interest and claim deductions, parents can invest in the Sukanya Samriddhi Account for a girl child. This scheme will give you 9.2% interest per year. Account can be opened by any parent or legal guardian in the name of a girl child. The minimum amount of money that can be invested is Rs. 1000 while the maximum amount that can be invested is Rs. 1.5 lakh for a given financial year. One girl child is eligible to open only one account and maximum 2 accounts can be opened in the name of two different girl child. If the minimum amount of Rs. 1000 is not invested then the account will be discontinued by the bank or the post office. A penalty of Rs. 50 will be levied for revival of the account with the minimum sum to be deposited for that year. Once the child attains 18 years of age, partial withdrawal can be made up-to 50% of the balance at the end of the preceding financial year. The account can be closed after the completion of 21 years and if the account is not closed after 21 years, i.e. maturity, the balance will be applicable for interest as per the scheme. Account can also be closed after the completion of 18 years if the girl has been married. Parents can open account for their daughters, up-to the age of 10 years from the date of birth. A one year grace period has also been awarded for operation of the scheme.
2. Depositing money in Public Provident Fund (PPF)
If you deposit money in Public Provident Fund (PPF) in the name of your children, the deduction and interest acquired is also exempted from taxes. But the overall limit will be clubbed with the parents limit at 1.5 lakh per annum. Under section 80C, premium paid for insurance in the name of your children can also be used to claim deduction.
3. Gift your children
The current law states that any gift received by a person in cash which exceeds Rs. 50,000 will be considered as income from other sources and hence, it will be taxed. However, if gift is received from relatives, this rule will not be applied. Also, a gift received on marriage under a will or inheritance will not be taxed. Although there is no tax on gifts, gifts that are given by people other than relatives which exceed Rs. 50,000 will be clubbed with the recipients’ taxable income. But income earned by gifting to children, or spouse or son’s spouse will be included in the income of the donor for taxation. Therefore, if you want your money to be treated as income of your children, you must prove that the children has used the money from gift assets. Thus you can save a great amount of tax by gifting it to your children and parents who don’t have any income.
4. Medical insurance
Buying a medical insurance will help you save taxes. As per section 80D, a deduction of Rs. 15,000 can be claimed if you buy a health insurance for yourself. At the same time you can save Rs. 40,000 on taxes if you buy a medical insurance for the whole family. Under the above section, you can claim health insurance, health check-up, and premium for yourself, your children and your spouse. You can also include your parents and save Rs. 20,000 more if they are senior citizens. A health insurance for the whole family can help you save a large amount of tax.
5. Save taxes on adult children
Once your child reaches 18 years of age, he/she will be treated as a separate individual for all taxes and the clubbing rule will no longer be applicable. This gives you a chance to transfer money to a major child (18 years and above) and have another exemption of Rs. 2 lakh in addition to other exemptions that other taxpayers enjoy. So gift him/her any amount of money and avail tax free returns. This will also increase your PPF limit.