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 2.4 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.
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