Seven ways to earn tax free income :-
By investing in your child's name you also set up an escape route in case the government brings in the inheritance tax in the future. If the asset is already in the child's name, there won't be any tax. Gifting money to an adult child and investing in his name is tax-efficient but won't be a great idea if the child is financially irresponsible. A gift is irrevocable, and once given, there is no looking back. In your attempt to save 10-30% tax, you could lose 100% of the principal. Being a legal adult, an 18-year-old can also invest in stocks and mutual funds on his own. The short-term capital gains will be tax-free till the basic exemption of Rs 2 lakh a year.
4. Take help of an adult child
Rebellious, obdurate, lackadaisical, wasteful ... parents have several adjectives for college-going children. Allow us to add 'tax-savers' to this list. You can save a neat sum by investing in the name of an adult child. After a person turns 18, he is treated as a separate individual for tax purposes. This means his earnings are no longer clubbed with his parent's income and he enjoys the same exemptions and deductions as any other adult taxpayer.
"Gifting money to a child above 18 and then investing it for taxfree gains is a perfectly legal strategy. You can gift any amount to your child without any tax liability," says Kaushik of Taxspanner. You don't have to wait for the child to turn 18 before you embark on this strategy. The rule is that if an individual turns 18 anytime during a financial year (even on 31 March), he gets the benefit for the entire year. Even those with children aged 16-17 years can use this strategy. Just invest in a 500-700 day FMP.
By the time the scheme matures, the child would have turned 18 and the income will be his own. A child over 18 also raises your investment limit in the PPF. You can separately invest up to Rs 1 lakh a year in his PPF account. In case of minors, contributions are clubbed with that of the parent and the combined total cannot exceed the annual limit of Rs 1 lakh. "This helps build a capital base for the child for future use," says Delhi-based chartered acountant Mahesh Agarwal.
By investing in your child's name you also set up an escape route in case the government brings in the inheritance tax in the future. If the asset is already in the child's name, there won't be any tax. Gifting money to an adult child and investing in his name is tax-efficient but won't be a great idea if the child is financially irresponsible. A gift is irrevocable, and once given, there is no looking back. In your attempt to save 10-30% tax, you could lose 100% of the principal. Being a legal adult, an 18-year-old can also invest in stocks and mutual funds on his own. The short-term capital gains will be tax-free till the basic exemption of Rs 2 lakh a year.
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