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How Can your child Can also help us cut your tax liabilities?

Family members not only help provide emotional support, but in many cases, financial as well. For instance, there are various ways in which your family, be it parents, spouse or children, can help you save money in the form of tax liabilities. Here are seven ways in which you can cut tax by spending, investing and saving for your children.

Open a bank account
if you open a savings bank account for your child, then the interest income up to Rs 1,500 per child for a Maximum of two children, per year, will be tax-exempt under Section 10 (32). This means you can save up to Rs 3,000 in tax if you have two kids.

Invest for your child
If you have not exhausted the Section 80C limit of Rs 1.5 lakh a year with your investments, you can invest for your child to avail of the full exemption. For instance, you can invest in the PPF, Ulips, mutual funds and some traditional plans, but remember that the income from these will be added to your income and taxed at the applicable rate. This can be avoided by investing in instruments that do not tax income, such as the PPF, or equity mutual fund ..

Invest in adult children’s names
If your child is an adult, that is, above 18 years of age, then the income he earns from his investments will be taxable in his hands and will not be clubbed with your income to be taxed at applicable rates. So if his net earnings and income are below the taxable limit, you can save tax on the income from his investments if you gift him money, which he can invest.

Pay tuition fee
If you have school-going children and you have not exhausted Section 80C deduction limit, you can consider the tuition fee from the overall school fee you pay for your kids. Up to Rs 1.5 lakh is tax-exempt under Section 80C for tuition fee paid for up to two children in a year. If you are salaried, you can also claim exemption of Rs 100 per month, per child, up to two children, as children’s education allowance, and Rs 300 a month, per child as hostel expenditure allowance under Section 10. This means that besides Rs 1.5 lakh a year, you can save Rs 2,400 and Rs 7,200 a year as well if you have two children.

Take education loan
if you take a loan for your child’s higher education, then the interest component that you pay on the loan will be deductible under Section 80E for eight years from the time that the repayment starts.

Buy health insurance
If you buy health insurance for your children, then the premium paid up to Rs 25,000 a year is tax exempt under Section 80D, which also includes expenses for preventive health check-ups up to Rs 5,000.

Deduction for disabled children
If you have a child who is differently abled or has a specified disease, then you can avail of deduction under Section 80DDB for the medical expenses you incur. You can claim a deduction of Rs 40,000 or actual expenses, whichever is lesser, in case of a disease. For 40-80% disability, you can claim up to Rs 75,000, and over 80%, the available deduction is Rs 1.25 lakh.

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