How Family Helps To Earn Tax Free Returns

A family has been remaining an integral part of our society. No one can ignore its role for the growth and development of our society. When it comes to taxation, even our laws give leverage to family and its members. In this article you will find how your family members help you to earn tax-free returns.

1) Non-working spouse: Spouse is always considered as better-half in every field of your life. Even Income Tax Act approves it. As per this act, you can Invest your money in the name of your non-working spouse in tax-free instruments such as PPF or tax-free bonds and earn tax-free returns. NOTE: If your spouse invests those money in other than tax-free instruments, the income will be clubbed with your income.

2) Parents: If any or both of your parents do not have a high income or no income at all while you are in 30% tax slab, you can invest in their name to earn tax-free income. You can invest ₹30 lakhs (₹36 lakhs in case the parents are senior citizen & do not have any income) in FD (considering 8% interest rate per annum) individually in the name of any or both of your parents. Such income i.e., interest is not clubbed with your income.

3) Major child: As per taxation laws in India, a person after attaining 18 years of age, should be treated as separate individual and his/her incomes shall not be clubbed with his/her parental incomes. Hence, you can invest around another ₹30 lakhs in the name of your adult child and earn tax-free returns.

4) Minor child: Even a minor child in your family can help you to earn tax-free returns. A minor's income is generally clubbed with that of the parent whose income is higher. However, you can avail exemption of ₹1,500 per child per year to the maximum of two children. NOTE: If a minor earns income by undertaking manual work or activity involving application of his skill or talent or specialised knowledge, then such income is not to be included in the total income of the parents or any others.

5) Gifts from relatives: Any gifts received from a relative is fully tax-free. Here in case of gifts, the definition of relatives includes your spouse, your brother or sister, brother or sister of your spouse, brother or sister of either of your parents and any of your lineal ascendant or descendant. Hence, keep good relationship with all your relatives.

Apart from these, indexation also helps you to earn tax -free income. As per income tax rules, an investor can adjust the cost of an asset to inflation during the holding period.

You can also use your ULIP to earn tax-free returns. Pay all the pending premiums if any at one go and earn tax-free returns.

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