Individuals in India must save taxes as part of their financial planning. While there are various tax savings techniques available, one method that is frequently ignored is investing through parents. Within the legal context of India, this blog article intends to provide insights into how investing through parents might help individuals maximize tax savings in India.
Legal Framework for Investing through Parents
Tax saving methods through parents is possible for those whose parents fall outside the tax ambit or have considerably lower taxable income. You can transfer your surplus to parents with the help of a legal gift deed and thereby making investment through them. The money they receive will be exempt whereas the interest earned or profit they make using that money is taxable. Cash gifts received from a child are exempt and income earned from such cash gifts will not be clubbed to your income for taxation purposes.
However, if you have power over such income then investment is considered to be revocable transfer and the income may be clubbed. Therefore, tax planning should be done in such a way that overall tax burden of family should not be higher than previous tax burden.
Tax Saving Strategies Investing through Parents
Employing parents’ tax slabs effectively
By investing through one’s parents, one can maximize tax savings by taking advantage of their reduced tax slabs, especially if they fall outside tax ambit or if their income is in the lower tax brackets.
Invest in parents name by gifting them
Make a gift deed and gift your surplus to parents and make investment through them. The money they receive will be exempt whereas the interest earned or profit they make using that money is taxable. Like mentioned in the earlier point, it works better if they are in lower tax slab.
Pay Rent to parents and claim HRA
If you are working in the same city as your parents where your workplace is situated and you live with them, you may show rent paid to parents , keeping the implication of their taxes on rental income at the end of year. You can claim HRA exemption within limitation of section 10(13A). You should pay rent to them regularly and your parents must show rental income in their income tax return.
Get Health insurance for parents to claim tax benefits
Under Section 80D of the Income Tax Act
An individual taxpayer can claim a deduction for the medical insurance premium paid for his parents for up to Rs 25,000, and if your parents are senior citizen, this limit increases to Rs 50,000. In addition, if the senior citizen parents are not covered under any medical insurance, the individual taxpayer can claim a deduction of up to Rs 50,000 for the medical expenses incurred for parents.
Section 80DD of the Income Tax Act
It allows individuals to claim tax benefits for the expenses incurred on the medical treatment, training or rehabilitation of a disabled dependent. The dependent includes spouse, children, parents, and siblings. Under 80DD deduction of Rs. 75000 is allowed and it increases to 100000 in case of severe disability.
Under Section 80DDB
An individual taxpayer can claim a deduction for expenses incurred on the medical treatment of a specified list of diseases or ailments for his parents. The limit of deduction is Rs 40,000. However, it can be increased to Rs 1,00,000 if the parents are senior citizens.
Conclusion
In India, investing through parents can be a valid and practical way to maximize tax savings. Individuals can minimize their tax payments by comprehending the tax rules, adhering to legal regulations, and utilizing proper investment options. Seeking competent assistance and staying current on tax legislation are critical steps in ensuring efficient tax planning and savings.
Remember that, while tax-cutting tactics are crucial, it is also critical to create a balance between tax optimization and ethical actions in order to retain financial integrity.
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