Income Tax News: There are numerous ways for astute investors to lower their tax obligations under income tax regulations, and many of them entail enlisting the assistance of family members. These creative approaches not only effectively reduce tax obligations, but they also guarantee your family’s financial stability because many of them are also advantageous to your family.
Investing Through a Non-Working Spouse
If your non-working wife receives a gift of money and invests it, the tax department will count the earnings against your income. However, investing in tax-free instruments won’t have any tax implications.
Fixed Accounts Held by Parents
Although putting traditional fixed deposits in a parent’s name can make them more tax-efficient, Pruthi notes that this may not seem like a wise tax move. By taking advantage of their generally lower tax brackets in comparison to their children, seniors can take advantage of higher interest rates.
This tactic isn’t without complications, though. If a parent gives their children their entire FD amount, interest included, when they reach adulthood, problems could occur. The recipients may then be charged with the interest that has accumulated on those FDs. The purpose of this clause is to stop tax evasion. Upon the parent’s death, additional legitimate heirs may also make claims against FDs.
Make Use of Additional Senior Citizen Exemptions
Investing in the names of senior citizens, especially grandparents or parents, can result in interest that is tax free. Plans such as the Senior Citizens’ Saving Scheme (SCSS) offer safe and potentially tax-free investment avenues for senior members of your family who do not currently have any.
Basic income tax exemptions up to Rs 3 lakhs are available to senior citizens over 60, and an even higher limit of Rs 5 lakhs is available to those over 80. Currently, PMVVY offers 7.4% interest, while SCSS offers 8.2%.
Investing Through a Adult Child
When a minor child’s interest is combined with their parent’s income, investing in their name is ineffective. For tax calculation purposes, the child’s earnings are considered differently after they turn eighteen. Parents can secure their child’s financial future and receive an additional avenue for tax benefits by contributing up to Rs 1.5 lakhs annually into their PPF account.
And FDs are helpful here as well. Let’s say you wish to put down a sizable amount for your child’s future marriage or education. The interest you earn on this amount, if you choose to invest it in fixed deposits (FDs) in your name, will be subject to taxation according to your applicable tax bracket.
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