How to save taxes on investment via children

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Save Taxes

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.

save taxes on investment via children

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.

3 COMMENTS

  1. It is the clearest i have found and i am sure it is going to help me a lot as a common Indian citizen.It’s really great that u take initiative to tell people about this and your way of representation of thought is really good.We can understand out problem very easily and get our answers faster.
    Thanks , this really help me a lot. This blog is really helpful for us to know more about ITR. .

  2. Thanks this blog has really helped me alot. This really helps and tells a process that is required to fill up an Income tax return. This blog tell us step by step how we should fill taxes and yes it is also easy to understand. Each and every details have been mentioned in simple and clear language.
    i would prefer anyone to have a eye on it to clear all their doubts. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. Great work keep it up.It tell breifly and accurately about taxes. The blog is very detailed and the way it explains the things is very easy to understand and to retain it really helps a person on how to fill up the ITR and how to enquire about it. Great work from ALL INDIA ITR since it is a very well written and a very useful blog.

  3. I didn’t know that we can also save tax via childrens except the education allowance, now I know all the main points that were help us to save tax like- Save taxes on adult children, . Medical insurance, Gift your children, Depositing money in Public Provident Fund (PPF), Deductions under Section 80 C. thanks ALL INDAI ITR. NICE WORK.

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