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How Can you Save Tax Through your Children?

    IndianMoney.com Research Team | Thursday, August 07,2014, 06:31 PM
 

save-tax-through-your-children

Your Tax Planning needs:

Saving on tax by taking an education loan for your Child’s education

Education for your children to do an MBA or an engineering course costs a lot of money and an education loan can be taken to cover up this expense. This education loan even though it carries a debt/repayment burden can help save on your taxes.

You can take the education loan in your name (parent) and under Section 80 E of the Income Tax Act the interest portion on the education loan is fully tax deductible provided the loan is taken from a financial institution (Bank/NBFC) and not from your relatives. There is no upper limit for claiming this interest benefit under the Section 80 E.

You can claim this deduction on the interest portion of the education loan from the year you start paying it back. This deduction can be claimed only for eight consecutive years. You can claim this deduction even if the education loan is taken so that your children can study abroad.

Better tax planning:

Saving on tax on the tuition fees of your children

Saving-on-tax-on-the-tuition-fees

You pay tuition fees for the school/college education of your children within India .You can avail a tax deduction of INR 1 Lakh on tuition fees under Section 80 C or the actual tuition fees you pay whichever is lesser.

You can claim this deduction only for two dependent children on the actual tuition fees paid or up to INR 1 Lakh under Section 80 C whichever is less.

You and your spouse can claim this deduction under Section 80 C separately if your spouse is working and avail a twin benefit.

Saving on tax by taking a health insurance policy for your child

Saving-on-tax-by-taking-health-insuranceYou can purchase a health insurance policy in the name of your child and claim a deduction under Section 80 D of the income tax act up to INR 15000 on the premium you pay.

If you have children with disabilities

children-with-disabilitiesIf you have children with disabilities then you can claim a tax deduction on the medical treatment under Section 80 DD of the income tax act. You can claim a deduction of INR 50000 if your child has a normal disability (40% disabled) and up to INR 1 Lakh if your child is severely disabled (80% disabled).

If your child suffers from certain specific illnesses/diseases covered under Section 80 DDB of the income tax act then you claim a deduction up to INR 40000.

Tax Planning - Tax allowances on your children

  • You can claim a hostel allowance of INR 300 per month per child for a maximum of 2 children on expenses incurred in India.
  • You can claim an education allowance of INR 100 per month per child for a maximum of 2 children on expenses incurred in India.
  • Medical expenses you incur on your dependent children can be deducted up to INR 15000 per year after presenting the medical bills.

Investments in the name of your child

Investments-in-the-name-of-your-child

You can invest in the name of your minor child and the income you get on the investment is tax deductible on your income up to INR 1500 up to 2 children.

You can invest in a long term fixed deposit in the name of your minor child and the interest earned is tax deductible up to INR 1500.

Creating a trust in the name of your minor child

You can create an irrevocable trust in the name of your minor child and transfer some of your assets (shares/mutual funds) to your child. The trustee owns these assets on behalf of your child.

You no longer are the owner of these assets once you transfer them in your child’s name and your child becomes the owner of these assets. Since the child is a minor the trustee looks after the assets and when the child reaches 18 years (major) he can use these assets for his education.
,br>If you specify the beneficiary (your child) as well as the amount he gets then the assets you transfer are taxed in the hands of the trust.

The Need for Tax Planning:

How to save on tax using your major children

Investments-in-the-name-o-your-child

If your child has just started earning and falls in the INR 0-2 Lakh income tax slab where the tax liability is nil and you fall in a tax slab where you have to pay an income tax of 30% (Income > 10 Lakhs) then you can transfer a certain amount as a gift and under the clubbing provision (Section 64 of the income tax act 1995) this income is clubbed to your child’s income and he is taxed as per the income tax slab he falls under after this amount is added.

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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