- Apr
- 25
- 2012
Tax Planning- Save tax through your family
Simplest way of saving tax is by investing through parents, parent in laws, wife and children. If you invest in the right instrument, the rate of return may be higher as well. Here is how we can save tax through our family members.
Through Parents
Its a fact that Your own parents as well as your own in-laws can become legal tools of tax planning for you and your family. If you want to achieve this dictum then all you are need to do is just to give away a portion of your funds, either as a gift or a loan, to your parents as well as your parents in law so that in years to follow your income tax burden becomes lighter as the income on funds transferred by you to them which would bring in income would be taxed in their hands.
With the increase in the limit of exempted income for individuals, women tax payers and senior citizens, it is now a great time for having separate income tax files for all family members.
Assuming that both the parents are senior citizens. Here’s how you go about it. Income tax deductions allow senior citizens a tax-free income of Rs 2.5 lakh. To exhaust this limit, say you gift Rs 28 lakh to each parent in cash. Of this, both can individually put Rs 15 lakh in a senior citizens savings scheme that earns a return of nine per cent and pays interest every quarter. Each will get yearly interest of nearly Rs 1.4 lakh.
If they invest the remaining Rs 13 lakh each in the State Bank of India’s (SBI) fixed deposit (FD) of eight-years (at an interest rate of 7.5 per cent) that pays interest each quarter, it will fetch them an income of nearly Rs 1 lakh annually.
That means both parents have earned Rs 2.8 lakh from the senior citizen saving scheme and another Rs 2 lakh from SBI’s five-year deposits each year. A total savings of Rs 4.8 lakh – the tax-free limit (Rs 2.4 lakh) that each parent enjoys. So, they don’t even need to file tax returns.
Same planning can be done for parents in laws.
Through Major Children
All your adult children are as solid as a rock to help you save your income tax. After October 1, 1998, the provisions relating to gift-tax have ceased to exist.
Now you are free to gift away your money to your children without attracting gift tax. This amendment makes it a good idea to make liberal gifts to your major children so that the income, if any, arising from these investments in years to come can be taxed in the hands of your children.
For example, if you have fixed deposits let us say of Rs 50 lakh and you have a son and a daughter, who are not minors, then it makes sense if the son is gifted Rs 21.25 lakh and if he invests the same in an FD (at an interest rate of 7.5 per cent) , his income of Rs 1.59 lakh will be tax-free. For daughter, the tax-free income is Rs 1.9 lakh. This means a gift of nearly Rs 25 lakh. On this amount the son as well as the daughter will not pay income tax because the amount is below the exemption limit. In this manner, your children can now be great source of tax saving for you.
Thus, a person making a gift to children can enjoy the benefit of lower income tax incidence in the family. If, however, due to some reasons you do not feel inclined to make huge gifts to your major children, then you may give interest-free loans to your adult children so as to legally reduce your taxable income.
It is lawful to grant interest-free loans to adult children from your own funds.
Through Your wife
Married taxpayers can make a substantial saving of income tax by setting up two separate independent income tax files, one each for the husband and the wife.
If your wife prior to her marriage was already assessed for income tax, then she may continue to file her income tax return in the same income tax ward/circle where she was assessed. Your wife’s Permanent Account Number would also continue to be the same though her surname would change after marriage as also her residential address.
After marriage all that is needed for a separate income tax return for your wife is to file the income tax return with her new surname and new address. If your wife desires, she can continue to file the income tax return mentioning her old address (before marriage).
Due to marriage if the town changes, then she can file the income tax return in the new town according to the new jurisdiction which would be on the basis of residential address.
Thus, as a result of marriage one should plan a separate income-tax file of the wife. However, care should be taken to ensure that no direct gift or transfer from husband is made to the wife as clubbing provision may get attracted.
Sandeep Kanoi+
I am married person and mama of my wife is residing at UAE. He wants to gift some amount to me. may i know the same amount can be treated as free gift? if it can be treated as free gift so please provide me any circular no for future and please advice which type of gift deed we have to do???
i have been given loan by my parent to clear my house building loan,kindly guide me how to reflect this amount in my income tax return and method of paying back this amount .
thanks
Can I pay salary to my wife for working in my company & will her salary be eligible for all the available tax deductions individually
Thanks!
Sir, My father recived 25 Lacs. as retreiment , I want to know that he can give me 10 lacs so i can invest in FD. Second Question, the interest of FD is my income or my father income
Kindly advise me on this issue.
Hello
I am planning to start a recurring deposit for 21 months 4000/- a month.
Can I show these savings to receive income tax exemption under 80C?
Hi Sir,
I want to give a gift of Rs.1 lacs to my parents for their house hold expences , kindly suggest us what documents will be submited to tax return file which can show that Rs 1 lacs is paid as gift to parents.
A humble request kindly suggest us as soon as possible on today or tomorrow Morning.
Best Regards
Kamal Kant Sharma
#7520022092
My father in law wants to gift a residential flat in Kolkata with an estimated valuation of Rs 15 lacs. He wants to make a registered deed paying the stamp duty as per present valuation.
I have a taxable income in 20% slab. What tax implications can come upon me?
Kindly advise me on this issue.
Dear Sir
I have some simple questions to ask you…..
1. I have some kishan vikas patras whose accrued interest in the current fi year is rs. 99000/-. now if I invest rs. 150000/- with interest rate 10% per annum in this year what will be my taxable amount for the current financial year? Is it Rs. (99000 + 10% of 150000) = Rs. 114000 or Rs. (99000 + 150000) = Rs. 249000 ?
2. What is the maximum amount I can gift to my wife / parents in a financial year? Is gift taxable?
3. Is the only interest gained from FD is taxable in a fi year and not the total investment amount? If it is so then one can Invest Rs. 20 Lakhs with interest rate 10% (interest gained from it is Rs. 2 Lakhs) + 1 Lakh in 80C for a fi year. Am I correct?
4. Does investment instruments like mutual fund, shares, IPO, NCD, Bonds fall under same category of FD ( means only the interest is taxable, not the total investment amount)?
If the income from fixed deposits from bank for senior citizen (form 15H submitted) exceeds Rs. 2-5 lacs
then will the bank deduct TDS on excess amount or on the total interest earned.
Please reply.
This is best article i searched for Tax Planning and also up to date.
I want information that can i get TAX saving benefit from my current Education SAP Delphi computech having fees 1.68 Lakh
want s to know about the provisions of u/s.64 of the incometax act. that is income earned from my mother’s deposit and recently my mother passed away and I want to declare my mothers interest income clubbing with my salary income.is it possible to do it?
If the 20 lakhs is splited among four members i.e 5 lakh each to
1.dad
2.mom 3.daughter
4.daughter.Both daughter are major.They are putting in one year fixed deposit.And getting the interest monthly.Whether they have to pay income tax. ..for tax free interest What we have to do.Whether to put along with senior citizen.Give me suggestion
Dear Mr.Saurabh, Well noted, thanks. For example, I transfer that surplus amount of Rs.2.00 lakhs to my mother’s a/c and through which I am making deposit at her name. After decease of my mother, as a nominee, I will be going to get the sum adding interest totaling 2.50 lakh (Approx). In that time what will be the tax measure when I get the maturity proceeds. Whether the entire 2.50 lakh would be added to my gross income during that time of getting the maturity proceeds or else I will have to pay the tax on the differences of actual less interest earned (0.50 lakh)? Or the income generated on and after getting the maturity proceeds only I am liable to pay tax? Kindly check and help us to make the valuable suggestion made by respective author.
Thanks, Regards, Sivaram
Dear Mr Sandeep Kanoi, I have cleared now thanks. From your text I understand that the interest income nothing but the normal income. So, after clubbing the interest income to the other income if any and aggregate total of that is not exceeded the fist slab then the assessee need not to pay tax or if anything had been deducted by organisation then they will have way to get the refund filling the rax return. Pls confirm.
Obviously author has assumed that parents do not have any other Income. TDS they will get refund by filing Income Tax Return and Claiming the refund. If taxable income not exceeding basic exemption limit they can submit Form 15G or 15H as applicable to bank to avoid deduction of TDS on interest income.
Dear Mr Sandeep Kanoi, Noted and thanks. Even if bank deducted TDS on and above 10000/- interest payment on our deposit, it can be reimbursed from the tax authority showing or including entire interest income of Rs.1.40 lakh in returns, if there was no other income earned by my parents. Kindly check and confirm on my view.
What Author means is that you will get exemption of basic income tax slab
Dear Sir, Kindly explain how will the interest on bank deposit of Rs.1.4 lakh on the deposit amount of Rs.15 lakh make tax free in the hands of parents? I believe, bank interest are something like a short term investment where the exemption is fixed upto Rs.10,000/- a year. In my view it cannot be taken as fully in their tax slab. Your assistance will be more useful for us.
Sir,
I am now working in middle east and I used to send my salary to my wife bank account.
She used to deposit in her name and now the bank informs her that from her FD deposit from her account, the interest amount comes around Rs 3 lakhs per this financial year and she has to pay Rs 36000 as income tax.
Now can u suggest me how in this condition for the current financial year till march 2012, in what ways, tax can be avoided as we failed to put some amount in our elder daughter (aged more than 18 yrs) or in my own name. Could you suggest now if we transfer the FD amount now in my name or my elder daughter name, whether IT dept will agree for tax avoid.
Pl reply to my mail ID.
Thanks
V.Pugazhenthi
Dear,
I think you are still confused, by transferring Rs2 lacs to your father will not allow as a deduction from your taxable income what you can save is tax on income generated by investing such Rs.2 lacs.
Example: Suppose your income from salary is Rs 7Lacs in A.Y 2012-13 then you have to pay tax on such 7 lacs(after deducting various deduction) however out of this income you saved Rs2 lacs which you may invest in FD. Now the topic will come in to picture, if you invest in your own name then you have to pay tax on interest/income generated by such investment (if interest amount is Rs20,000 and you are falling in 20%tax slab then you have to pay Rs4000 as tax) on the contrary if you will invest in your father name then you can save such tax i.e Rs.4000.
when minor’s income is clubed with father’s income then can deduction under section 80 c can be taken by investing in fdr
Sir i want your advice in my case.
My annual taxable in come is 7,00,000 and
my father 66 years old has no income. Sir i want to know that can I gift my father a sum of Rs 2,00,000 to reduce my income to 5,00,000.
if my total salary should be treated as Rs 5,00,000 then where to reflect these 2,00,000 and what documentry proof is required in this regard for filing the Tax Return?
Can I online transfer 2,000,00 in father a/c and will statement of my and father a/c will work as proof.
Dear Sir
Your wife can file the return of income just to claim the refund of the TDS deducted. However, the same is not compulsory.
CA. Dinesh H Agarwal
Email: andherica@gmail.com
Cell: 9820700430
Hi Sir,
I am a salaried guy and my wife is a home maker who has got a new Pan card recently.She does not have any source of income.
I open a fixed deposit in a bank in my wife’s name by making a deposit of around 1lakh for a year at an interest rate of 9% (which does not exceed 10,000 which would invite TDS).Should my wife file tax returns at the end of the financial year?
Ashwin
Kindly advise me whether investment made in PO Recurring Deposit in the name of my children who were minor when the account commenced.
Would my children (who would be major when the account matures) or me be liable to pay income tax on the interest earned when the recurring deposit matures.
Can one use indexing in calculating income tax on interest earned in RD accounts, FD, or Time Deposit accounts.
Regards
Sunil
Sir i want your advice in my case.
My annual in come is 5,30,000. i pay around 15 thousand per month to my mother for her house hold expences.
Sir i want to know that these 1,80,000 is an income of my mother from my salary so does i have to pay tax for these 1,80,000 or it would be exempted from my total income, and i would have to consider my total income as 5,30,000-1,80,000 = 3,50,000/-. if my total salary shuld be treated as Rs 3,50,000 then where to reflect these 1,80,000 and what documentry proof is required in this regard for filing the Tax Return?
I am writing to clarify to certain readers what the author has not clearly brought out in his article.
1. Your income is wholly taxable in your hands.
2. If you make investment out of your income in your own name (eg FDS, property to rent out etc) the income from such investments will also be taxed in your hands.
3. Therefore, the author suggests that investment should be made in the name of the family member to the extent income generated from this does not exceed the nil tax limit.
Good Information has been given in this article for layman. One can transfer his business as gift in his Mother’s name or his Father’s name if his father is a senior citizen. That way more tax exemption can be availed of under income tax act without attracting any clubbing provisions.
Similarly if one is having an FDR or other investment and he is earning income therefrom. In such case if such FDR or other investment can be transferred by way of gift to senior citizen parents then income from such FDR or investment will get benefit of higher exemption limit under Income Tax Act in the hands of senior citizen parents if the parents have not exhausted their full exempted limit from their own income.
Similar will be the case if such investment is transferred to major children by way of gift, who are not having any income. The seperate exemption of rs 160000 or 190000 as the case may be, available to major male or female child can be availed of this way.
That is tax planing through your family and it will not attract any clubbing provisions.
The article is good one and no suggestion has been made in the above article, following which, will result in attracting clubbing provisions.
hi
thz for the updates. well i would like to know that can a gift be given to my H.U.F file also with out paying gift tax .
Hope the comment by Amit will clear the doubt of our readers.
Clubbing Provisions applicable only in case of wife in which gift not been suggested. You can do other plannings i.e. doing business in wife’s name.
Mere tax planning is not good, it must appear to be planning of finance and for future.
In any case of transfer of property and holding investment in name of others persons major factors to be considered are own age, age of children, time gap in their attaining majority, age of parents / parents in law, and also future contingencies as to death of any such person and his legal heirs who can claim property /relations in changing times etc.
I add :Financial planning for minor children:
By gifting, purchasing and holding assets which do not bring in higher taxable recurring taxable income, but appreciate in long term can be useful financial planning for parents as well as minor children. For example, equity investment (shares/ MF) in hands of minors bring in lower taxable recurring income but can appreciate and capital is built up over long period of time when child is major and need capital it can be realized. Similarly investment in land and building even own residential property in name of/ or account of minor can be planned to take benefits of exempted income and appreciation.
Gold, silver, and jewelery can be purchased in a/c of minor children/ major children also as there is no recurring income and there is appreciation.
In view of future contingencies as to death, and changes in relationship retaining control is also essential whetehr investment be made in name of children or parents or anyone else – the properties can be held in joint names.
You wrongly interpreted the article. Gifting to son sill not be reduced from your income.
1. You can any amount.
2. Interest free loan we would not suggest.
3. Gift can not be reduced from your taxable Income.
Sir,
Your most valueable Advice as ” Tax Planning- Save tax through your family” on
AUGUST 7,2010, you have advice that-
“Assuming that………….. say you gift Rs 28 lakh to each parent in cash……………..”
I WOUL LIKE TO REQUEST ON THE FOLLOWING- 1. HOW MUCH AMOUNT “IN CASH” CAN BE GIFTED TO THE BLOOD RELATION ?
2. “you may give interest-free loans to your adult children so as to legally reduce your taxable income.” I WOULD LIKE TO KNOW THAT HOW CAN I REDUCE MY TAX LIABILITY ON INTEREST FREE LOAN TO MY BLOOD RELATION ?
eg. MY ANUAL INCOME IS
Rs. 8,50,000.00
LESS :U/s: 80C Rs. 1,00,000.00
LESS :GIF[TO SON]TRs. 5,50,000.00
NOW, CAN I ASSUME MY TAXABLE INCOME WILL BE Rs.2,00,000.00 [?]
With due respect to ur article i would like u to clarify the advice by taking examples and also consider clubbing provisions in the examples. Where ever possible also mention the relevant sections.
Hi Sir,
I have booked a flat with my wife’s name. Now we have taken home loan from IDBI bank with joint name. As per requirement of bank, EMI need to pay from my salary account. My wife is also working.
1) As EMI is deducted from my account only. How my wife will also be able to make tax benefit for home loan?
2) To get tax benefit of home loan should we need to make some agreement or we can take tax benefits by mutually understanding.
i cannot understand what type of PLANNING is thr?? in all cases , the money will be taxed in habds of transfereor at source…neone cn ask fr a bank detail n trace these transaction n ask fr reasons of such wealth of husband…he has 2 pay tax!!!
The clubbing provisions are not attracted in the cases mentioned above in this article.
Gift to parents and in laws parents and gift to major children from parents will not attract any clubbing provisons. However no gift should be made to the spouce as it will attract clubbing provisions.
For sure. We have considered the provisions of section 64. If you have any advise in respect of this article do mail us the same.
Thanks for commenting
Before you publish, please do some research, and also before you dole out free advise, please ensure that the planning is fool proof and help full to the asessees, through out the article, the clubbing provisions u/s 64(1)which talks about clubbing of income in the hands of the assesse, in certain circumstances, have been ignored, while framing the plan, necessitating the gullible assesses to pay tax even on the income earned in the hands of the children as well.
This tax planning of transferring some of one’s funds to his wife requires clarification. If it is given by way of gifts any income accruing from the gifted property/funds will be taxed in the hands of the transferor only i.e Husband only. In that case how it is posssible to effect a tax planning by gifting amount or property to a wife. Kindly clarify
what will be the effect of clubbing provisions in this planning
will u please give me an information about to save the tax liability of an earning member through minor child & house wise.