Seven ways to earn tax free income



5. Parents can help too

Your parents can also help you avoid the tax net. If any or both of your parents do not have a high income, while you are in the highest 30% tax slab, you can invest in their name to earn taxfree income. Every adult enjoys a basic tax exemption of Rs 2 lakh a year. For senior citizens (above 60 years), the basic exemption is higher at Rs 2.4 lakh a year. Unlike the investments made in the name of a spouse or a minor child, there is no clubbing of income in the case of parents. So, a person above 60 can potentially earn Rs 2.5 lakh per year without any tax implication. If he invests in taxsaving schemes under Section 80C, the income can be as much as Rs 3.5 lakh a year. In the highest tax bracket, this saves you more than Rs 1 lakh in a year. It gets even better if you rope in a grandparent who is above 80. Very senior citizens have a basic exemption limit of Rs 5 lakh. The grey population has a wide range of investment options (see table).

 

The Senior Citizens' Savings Scheme offers an attractive 9.5% return. All banks and financial institutions offer senior citizens higher interest rates on fixed deposits. If you are an aggressive investor, open a demat and stock trading account in your parents' name and dabble in stocks. If their total income is less than the basic exemption, the short-term capital gains will not attract any tax. A caveat—make yourself the sole nominee of the investments in your parents' name. This will ensure that there are no legal disputes with siblings. You need to take extra precautions when it comes to investing through your grandparents because there might be more legal heirs in the extended family.

Source : articles.economictimes.indiatimes.com

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