Awesome ways your parents can save income tax for you
Its time to submit tax proofs to your employer. You might be busy in looking for various tax saving options in 2016. While there are various ways to save income tax, one of the way where I have not touched the segment is about parents helping in saving income tax for their children. There are a few ways where your parents help you to save income tax. I feel you can use them efficiently to save income tax as per IT Act.
What is the Tax structure of Senior Citizens?
Understanding how Senior Citizens are taxed would help their children to claim maximum tax benefit.
Every citizen of India enjoys exemption limit in tax, which means that if your income is within those limits, you need not pay income tax. For senior citizens, i.e. age 60 years and above, this limit is Rs.3,00,000 and for super senior citizens, i.e. age 80 and above, this limit is Rs. 5,00,000.
Also Read: 10 Best Tax Saving Investment Options in India to consider for 2016
8 Awesome ways your parents can save income tax for you
The following are the few tips through which a taxpayer can save his tax.
1) Gift the amount to your parents or invest in their name
If an individual is having extra income to invest other than his/her name, he/she can gift that income to his parents. According to the Indian law of taxation, an individual can gift money to his parents, which is tax-free and this gift is limitless also. This money can be in the form of cash, cheque, jewellery or immovable property like land, flat, etc. Investments or all the income kept in your own name may increase his tax liability and even bring him into the higher tax bracket. This way, your income can be diversified. This can further can be utilized in investments of higher returns such as senior citizen saving scheme.
For example, your parents are senior citizens having no income under their name, you can invest up to Rs. 30,00,000 in each of their names if the annual return is 10%. That means you can invest up to Rs. 60,00,000 in the name of both parents and the interest so earned annually is totally tax-free.
2) Investment in PPF in your parents name
You can open PPF account in your name and enjoy tax free returns. However you invest only Rs 1.5 Lakhs per annum. You can invest in the Public Provident Fund (PPF) account opened under the names ofyou’re your parents too. The investment limit is 1,50,000 and it is totally tax-free income. You can deposit Rs 1.5 Lakhs each on your both parents totaling to Rs 3 Lakhs per annum. While you can keep your name as nominee, if invested for 15 years, total invested amount is Rs 45 Lakhs and total value with interest would be Rs 94 Lakhs. This is totally tax free.
3) Deduction through rent
If you are a salaried person and living with your parents in your own house, you can pay them rent and take ‘house rent allowance’. It is to be noted that the house should be registered in the name of the parents only. If an individual is a businessman and residing in his father’s home and operating his business from there, he can get the benefit by giving his father salary and rent. It is to be noted that his father should not be employed anywhere
Also Read: Various ways where couple together can save income tax in India
4) Mediclaim for your parents
Get the medical insurance policy of your parents and get the deduction up to Rs. 20,000 from your taxable income under Sec. 80D.
5) Medical treatment for your parents
An individual can reduce his taxable income if he has spent any amount in the medical treatment of his parents. In this case, he can claim the deduction up to Rs. 75,000 from his total taxable income under Sec. 80DDA.
6) Offset capital losses
If a person is having shares in his portfolio, and those shares are in long term capital loss, he can sell those shares to his parents in an off-market transaction. The rule says the long term capital loss can be set off through long term capital profits in an off-market sale and finding buyers off-market is really difficult. So you can take advantage by selling them to your parents to set off losses.
7) Interest on Housing loan where land is in the name of parent
An individual can also construct a house on the land of his father and take a home loan for the same. He can avail the benefit of interest paid on borrowed loan up to Rs. 2,00,000 under Sec. 24 of the income tax act. It is to be noted that the individual should not possess any other house in his own name to avail this benefit.
Also Read: How to Pay Zero Tax on Rs 10 Lakhs Income in India?
8) Invest in Tax-free bonds in your parent name
Tax-free bonds are debt instruments which are issued by undertakings of public sector undertakings (PSU). These instruments have a long term locking period, i.e. they are long term investments. The interest rendered from these investments have 7.5% and the interest is totally tax free in the hands of receivers. However one can invest in them upto Rs 10 Lakhs and beyond that he would be treated as HNI where the interest rate would be reduced by 0.25%. An individual can invest sum of amount in tax free bonds in the name of his parents also. Interest received on tax free bonds is tax free, hence parent can invest this interest amount in their name in other tax saving options like bank FD and interest on such FD scheme would not be clubbed with individual income for income tax purpose. The examples of few tax-free bonds are the National Highway Authority of India (NHAI), National Thermal Power Corporation (NTPC), Indian Railway Finance Corporation (IRFC) etc., which keep coming now and then.
Hope, this article proves to be fruitful to you while doing your tax planning and in understanding the concept of how your tax liability can be reduced with the help of your parents.
Readers, what is your view about these tax saving tips? Do you feel there are any other ways where your parents can save income tax for you?
If you like this article, please share it on your Facebook / Twitter. This would be biggest gift which you would be giving to this blog.
Suresh
Awesome ways your parents can save income tax for you
- Kosamattam Finance NCD – Nov-2024 Issue – Details and Review - November 24, 2024
- Best Large Cap Mutual Funds to Invest in 2025 - November 23, 2024
- How to Balance Risk and Reward in Your Investment Portfolio - November 19, 2024
Please explain about gifting to parents by example of FD, RD or cash… What receipts to show while filing return?
Please tell me if i gift fd in the name of my mother then can i show it in rebate or tell me the appropriate way to save tax by gift.. Please tell by example
pl once you also explain how to save on TDS on FDs as many Rtd. employees kept there benefits in Bank DDs and paying TDS while on the other hand paying Tax on their Pension too. TQ in advance.
Hi,
Under 80DDA, What are the bills that i can submit?.
Can i submit medical bills aslo like if parents using medicines for BP and others?.
Thanks in advance.
Dear Suresh,
The article on saving tax by investing in the name of parent is a nice one I now want to know whether a person who is a tax payer can invest in the name of his minor son in tax free bonds and the interest( which is tax free) as the minors income would be clubbed with that of the parent .The amount invested is treated as Gift
which is not taxable and from the source is parents savings.Pl clarify.
Yours sincerely.
v.ganapathyraman.
Hi Ganapathy, If you invest through your minor son or directly in your name, it does not attract interest. In such case why do you want to invest through your minor son. Yes interest is tax free, however clubbing provisions would apply, but it is tax free income. Also it does not attract gift tax as you have gifted this amount to your minor son.
Dear Suresh, Thanks for informative article.
How can I show up gift amount to parents or PPF in investment declaration ? ( I am salaried , so tax cuts at source ), it comes under which category ? I do not see any option in my investment declaration window hrworkways. ? Would you please help me regarding this.
+notify email
Sandeep, You cannot get this direct benefit. You would invest on your parents behalf who are in either low tax bracket or zero tax bracket and interest on their income is either not taxable or taxable at low tax bracket. This way you would get benefitted
Thank you for response. So, this can be availed only for extra income right ? Not for salary income ?
Hi Suresh,
I have a query on capital gain on shares. Could you please explain how the below scenario works like?
Say for ex: I bought 100 ABC shares of 10 Rs each, so the investment is 1000 Rs. Now the share price increases to 15 Rs after a month and I decide to sell part of the shares i.e. 67 shares which is equal to 1005 Rs to get my invested amount. So I want to know whether this is considered as capital gain and whether this needs to be declared while filing tax?
Dear Mr Suresh, I could not get any information on the website of IT regarding 80DDA. I spent around 65000 for my mother’s cataract operation. Can I claim deduction from my income for the same. I checked with many CAs who are not aware of the 80DDA section. Can you please clarify I can find this in the IT Rules.
Thanks
KVS
Hi Sureshji,
It was not clear on how gifting cash/money will save us tax. Can you please explain? Say, If I gift my parents Rs.10 Lacs, can I deduct that 10 Lac from my Income and would that amount not be taxable? Now if that Rs.10 Lac is invested by my parents in FD which earns 9% interest income p.a, would that 9% interest amount be considered as my income or my parents income? I did read somewhere income tax clubbing rule will consider that income as my income. Please help me to understand.
Plz clear Sir which forms and certificates will be produced by me if I want to get the tax relief
Under what section we can show our gifts amount to our parents for tax exemption
Srikannan, We cannot show any deduction of these gifts. But these can be given as gifts and Parents can invest and tax would be low on such investments made by them
Under which section can be mention “Gift to parents”??
HI Suresh.. How do i Claim tax benefit if I invest (means transfer to parents account or giving cheque ) in parents name for Senior citizen savings scheme.. If i show my parents SCSS passbook will it be enough ?
For bullet 1, do you mean that parents dont need to pay the tax or the one who gifts?? Meaning If I gift 50000 to my parents, can I get it exempted from tax? If so under which section? and what proofs to be submitted?
This is superb info for a salaried person like me. Thank you for sharing.
Hello,
My Mother had a cataract operation, where the expenses where around 20K. Can I show this expense under 80 D/DD/DDB?? I don’t have a medical insurance policy.
hello expert could you kindly let me know about point 6 of offset capital loss. i have few share from last one year and they at loss of around 30 percent. how can proceed to sell them to my parents off market. i mean i need to sell them via stamp paper or what. how can take tax deduction. i mean what documents i have submit in my office to claim deduction. thanks.
Do we need to submit any proof of documents if one gives a gift in terms of cash to parents?
Not required. But a mere bank online transaction or cheque transaction should be enough
In which section we can declare these gift money?? And what type of proofs to be submitted?
Hi Suresh Ji,
Hope you can remember me! I use to comment a lot till 2014; a regular reader of your blog since June 2013; read approximately all the articles. My comments stopped because I started reading your articles on Mobile while coming back from office or while travelling; I am very slow while typing on smartphones, that’s why, no interaction lately. Actually, I read your articles at one sitting i.e. in 4-5 days. I keep it as a task. As it’s on mobile, problem of Adblock is also removed.
I read your previous article regarding achieving your goal in 5 years; it was really great for me to realize that you achieved your goal; the best portion was when you decided to leave useless materialistic points like buying 10L+ car & foreign trip. Just because I understood the basics of Finance from your articles, I had also given up idea of buying new car in 2014, which I was planning for; had a plan to buy a new car by selling existing one & opting for loan. One of the worst decision taken by Pseudo rich middle class people; buying expensive premium car just for show-off purpose. I will sell my car when it will touch 1.5 lakh kms!
It really surprised me when my nephew told me that your website ranks 48,000 in world & around 3,500 in India. I had seen your website growing & truly speaking, it had really inspired me that hard work & perseverance really pays.
Hi Suresh,
First of all I appreciate your effort with the blogs, it has given me a totally different perspective on how to invest my earnings.
This is an interesting read about gifting money to your parents. What form do I have to fill to make this amount tax free. Let us say I give about Rs 20,000 to my parents every month for their expenses.
Thanks for your ideas
Regards
Ram
Hello,
I guess options 1, 2, 3 come under 80C. Am I Correct? If not then under which clause those will fall?
Thanks for the article. very helpful. I am a regular reader and off late it has proved to be very profitable. 🙂
I have a doubt please if you could help me out.
My father had a Cataract surgery and it cost around 22000. Can I get the benefit under any section od 80 D/DD/DDB.
Thanks
shubhanshu
Hi Suresh, this is helpful. But can you please advise if parents are self occupied and are already liable to tax, if we gift them as cash as per your option 1, will that be included as my parents income??
dear suresh , good tips but i am a bit confused in a few points
a) gifting to parents , is it really tax free
b) ppf , isnt there a pooling of income whereby taotal limit is 1.5 lakh
c) medicial treatment deduction only for specified illness.
correct me for my mistakes and do keep up the good work
1) As per IT act, gifts to relatives definition is tax free. your parents fall under relative definition, hence no gift tax
2) Yes total limit is Rs 1.5. But your spouse also can invest Rs 1.5 L 🙂
3) No. It is for medical treatment for parents like hospitalization expenses etc.