I had written about how investing intelligently on wife’s name can help you save taxes. This time we would be exploring how parents can help you save taxes.
There are 3 ways:
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1. Pay Rent to Your Parents:
If you are lucky and stay in your parents house (means the house is on either your mom/dad or jointly held by them) you can pay them rent. It’s perfectly acceptable transaction by Income tax department. The rent you pay to your parents would be added to their income as rental income and taxed according to their tax slabs.
The deal gets even better if the property is jointly registered on both of your parents name as the income from rent would be split between both of them.
Also Read: 9 Questions about Tax Exemption on HRA
Here is an example:
You pay monthly rent of Rs 15,000 to your parents.
Benefit to you: you would get benefit of HRA exemption
Tax on Parents: As the above income would be rental income, here is how the tax on this would be computed:
- Total Annual Rent – Rs 15,000 X 12 = Rs 1,80,000
- Standard Deduction @ 30% = Rs 54,000
- Total Taxable Income from Rent = Rs 1,26,000
So Rs 1,26,000 would be added to your parents income and taxed according to their tax slabs. In case they have no other income then the entire amount becomes tax free.
Also Read: How your Children can Help you Save Taxes?
2. Invest in Parent’s Name
For your parents to help you save tax two conditions should be fulfilled:
- Your parents should be paying tax that is in lower tax slab than yours
- Since money is involved, there should be enough trust and understanding between you and your parents so that the money can be moved/ invested the way you plan
Technically you can gift money to your parents and it’s not taxable in their hands. So your parents can invest the gifted money from their account. Since they are in lower tax slab than you, they would pay lesser taxes and effectively saving taxes for you.
Also Read: Highest Interest Rate on Bank Fixed Deposits (FD)
Here is an Example:
- You invest Rs 1 Lakh in SBI Bank FD offering 9% per annum for 1 Year.
- At the end of year you would get Rs 9,000 as interest. If you fall in 30% tax bracket you would need to pay Rs 2,781 as tax and would be left with only Rs 6,219.
- On the other hand if the money was invested on your parents name you might not pay any tax at all if their total annual income was below the taxable limit of Rs 2 Lakhs. So you can save Rs 2,781.
If your parents are senior citizens then you might also benefit from the extra interest that banks offer on such FDs.
Though the amount seems small in the example but over long run and on higher amounts the tax saving would be substantial.
Also Read: Tax Planning Guide for FY 2018-19
Similarly, all investments whose returns are taxed on marginal tax rate can be done on your parent’s name.
- Fixed Deposit in Banks, Companies
- NCDs, Bonds
- Debt Funds/ Stocks invested for less than 1 Year which generates short term capital gains and is taxed on marginal rate of interest
3. Buy Health Insurance policy for Parents:
Under Sec 80D on Income Tax a deduction of Rs 25,000 (limit increased in Budget 2018) is deducted if you buy health Insurance for your parents. This deduction goes to Rs 50,000 if either your mom or dad is senior citizen. This deduction is available irrespective of your parent are dependent on you or not.
Also Read: Tax Benefit on Health Insurance u/s 80D
So go ahead and Plan Your Taxes with Your parents!
I’m transferring (through netbanking) almost entire salary(say 30,000/pm) to my daddy’s account. Can I show this one for tax exception at-least I may get Rs.25000 tax exemption right?
No
ALWAYS NICE HELPFULL INFORMATION,,,,PLEASE …MY WIFE IS NON EARNING… PLS EXPLAIN OF BENEFIT OF ITR FILING….I USUALY TRANSFER MONEY BY NET BANKING TO HER SAVING ACCOUNT. AND HER PPF ACCOUNT. MY MINOR SON ALSO HAVINGPPF ACCOUNT.IF RETURN OFWIFE TO BE FILED WHAT ANY INCOME TO BE SHOWN IN WHILE RETUNRN FILING..PLS ANSWER …I HV NOT RECIEVED LAST POST RELATED WIFE AND MINOR…SO PLS REPOST..THNKS
Ideally any income arising for your wife or minor son from money transferred by you should be clubbed to your income and taxed accordingly. Its not necessary to file tax returns for your wife if she does not have any income of her own or her income is not more than Rs 2.5 lakhs last year.
Dear Amit ji,
Can you please explain, how to gift money to my mother every month. & which document required to prove the same.
Shailendra S
From last 10 years I am not working, is it compulsory IT return ,when I was working my income less then the slab is it necessary to return if income is less then the slab amount
Female age below 46
No its NOT mandatory to file income tax return if your income does not cross the taxable limit. However there are some advantages of filing ITR especially when its online and simple.
If I am making FD in account where my mother is primary holder and I am secondary. I making FD on my mother’s name then in this case the interest earned is taxable or not taxable?
Taxable to primary holder, so it would be added to your mother’s income and taxed accordingly!
If my younger brother is my dependent and I pay his tuition fee as well. I also have kid and also paying their fees. Can I add and show it.
I pay 20000 for my son and for my brother I pay 50000.
You can get tax exemption for your son but not brother!
How can I claim tax exemption on the gift amount given to Parents means under which clause?
There is NO tax exemption on gift given to anyone including parents. There is NO gift tax in India and hence the receiver has to pay NO taxes on receiving gift if its from close relatives.
Hi sir
How and where shall I shown gifted money details (parents) to claim my investment proof for coming year as investment plam , example I need to give this year investment details in advance ,so if I gifted 1 or 2 lacks of rupees to my parents,
There is no tax on giving or receiving gift between parents and son/daughter. So no need to show in tax returns.
Dear Amit
Suppose I transfer 10K every month to my brothers account (who stays with my parents) for my Parents house hold expenditure. can I get benefit of that amount like can I reduce my income subtracting gifted money to parents. hence my income will appear less and i need not to pay tax of that amount.
No it does not hapeen this way. What you gift is from your tax paid income however the gift received by your brother would not be taxable in his hands as it was transfer from close relative. Also if your brother does FD and get interest it would be his income and not yours.
What is the process to gift money to my mother so that i can go for the same process
You can gift your mother by either transferring money directly to her bank account or give her cash.
मेरे माता पिता तथा दो छोटे भाइयों की संयुक्त रूप से मैंने एक मेडिक्लैम पालिसी ले रखी है| जिसकी प्रीमियम राशी 20000 है| क्या मैं इस मेडिक्लैम को मेरे इनकम टैक्स रीटर्न में दिखा सकता हु?
yes
Can i open FD account in my fathers name and get tax exemption ? As you had mentioned in your 2nd paragraph. If so how ?
Opening FD in your father name means following transaction from income tax perspective:
1. You gift money to your father [Non taxable in your father hand]
2. Your father invests money in FD and earns interest
3. The tax on interest income has to be paid by your father
So in case your fathers income tax slab is lower than yours you can invest in his name. Just be sure that if you invest in your father’s name its his money and legally he has all the right on money. So a good understanding with your parents and siblings is important!
dear sir, my parents are in govt service and their health insurance premium is being deducted yearly by them. so can i claim that premium amount in my income tax filing under sec 80D
If your parents employer is deducting health insurance premium from their salary, then you cannot claim tax benefit for the same. The deduction is only valid if you pay for your parent’s health insurance premium.
Informative and Useful
Firstly I would like to thank you for sharing nice information.
1) It will be better if you provide clause / section number of the relevant Act.
e.g. You have quoted that if we invest in the name of minor child, exemption of Rs 1500 is applicable. Mentioning the reference will clear the matter.
.
2) If father is a tax payer and mother does not have her own income. Both are senior citizen. Can I invest on mother’s name ?
3) if any paper work is necessary for gift transaction ?
4) In case of parents, can we open PPF account in their name ?
Hi Hari:
1. The exemption of Rs 1,500 for income in the name of minor child is given under SECTION 10(32)
2. Yes you can invest in your mother’s name. The transaction in the eyes of Income tax would be – you gifted your mother X amount, your mother invested it and then on maturity your mother gifted you interest and principal. This is perfectly legal.
3. It’s a good idea to have records on plain paper for small gift amount, however if the amount is large and you do this very frequently, I would advise you to consult CA
4. Yes your parents can have PPF account and you can deposit money in the same. No problems in that. But interest on PPF in anyway tax free so this would not help in any additional tax benefit
1.What is the maximum amount can be gifted to parents or spouse ?
2.Gifting amount will be taxable for us.
1. There is no limit to what you can gift to your parents or spouse.
2. The money you gift is anyway after tax deduction and there is no further tax on it.
Nice post..I didnt know parents are a boon lifelong..Keep adding such informative and engaging posts..