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?
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Awesome ways your parents can save income tax for you
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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.
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.
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.
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 ?
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.