Saving Tax through Family! Surprised! Yes, we can save tax through our family members i.e. Parents, Major Children’s and Wife. To Save Tax through Family members we needs to invest in way that our tax burden shifts to our family members and we can take the benefit of Income Tax Slabs. Saving tax Through means not only saving in tax but also means Post Tax higher returns on your Investment.
Here is how we can save tax through our family members.
Save tax through Through Parents
You can save tax through our own parents as well as through our Parent in-laws. To achieve this goal you needs 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.
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 3 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 8.3 per cent and pays interest every quarter. Each will get yearly interest of nearly Rs 1.2 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 7.25 per cent) that pays interest each quarter, it will fetch them an income of nearly Rs 0.95 lakhs annually. That means both parents have earned Rs 2.4 lakh from the senior citizen saving scheme and another Rs 1.9 lakh from SBI’s five-year deposits each year. A total Tax savings on Income of Rs 4.3 lakh – the tax-free limit (Rs 3 lakh) that each parent enjoys. So, they don’t even need to file tax returns.
Same planning can be done for parents in laws.
Save tax 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. Investment made by Major Children out of the gift received by you will be taxed in the hands of your children. If for any reason you are inclined to make 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.
Save tax 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 is already filing Income Tax Return then she may continue filing the return with hew new surname and address or with her old surname and 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 gift or transfer from husband is made to the wife as clubbing provision may get attracted.
(Republished with Amendments)