Investing in the name of children and tax benefits

What are the best ways in which investments can be done in the name of children?
What exemptions can be claimed for the parent and how gifting & taxation works in this case?

Hi @Gowtham

Every parent wants to give their kids a solid financial future, and almost all include things like their children’s education and marriage on their list of financial objectives. One might not benefit from simply keeping money aside in a bank account because investments need to keep up with inflation. By getting started early, you give the power of compounding time to do its magic and help you build a sizable corpus.
In my opinion, these are some investment tools can be taken into account when you invest and save money for children:

  1. Sukanya Samriddhi Yojana: It is best for a girl child. It is a savings scheme to cover the girl child’s education and wedding expenses. The scheme offers income tax deductions on savings and fixed interest rates against the deposits.
  2. PPF: The Public Provident Fund (PPF) account has a lock-in period of 15 years and can be opened with a bank or post office. A PPF account can be opened in one’s own name as well as in the name of a minor. Interest is generally obtained at higher rates than standard FD rates and is tax-free to the investor. For increments of five years, the account may be renewed. One of the few investment products, PPF, has the exempt-exempt-exempt (EEE) designation, which provides triple tax exemptions. You receive tax exemption at the time of investment, accrual, and withdrawal, according to this.
  3. Equity Funds: Since investments are made in equities, returns from such investments tend to beat the rate of inflation and enjoy liquidity benefits as well. Example: ELSS, ULIP etc
  4. Life Insurance Products
  5. Investment in Gold
  6. Bank Fixed Deposits

Read more about Income Tax Deductions a Taxpayer can Avail - Learn by Quicko

Hope this helps.

Thanks for explaining the investment avenues.

Can you explain on the gifting and taxation done from parent to child perspective?

Hi @Gowtham

Sometimes, parents or relatives send gifts or cash to children during special occasions or festivals.

What is the tax implication of this?
According to the Income Tax Act, a gift from certain relatives is tax-free irrespective of the amount. Relatives include: Husband/wife, son/daughter (including stepchild and adopted child), father/mother (including step-father/mother), daughter-in-law/son-in-law, brother-in-law (and his wife), sister-in-law (and her husband) is tax-exempt.
Beyond this, if one receives any gift from non-relatives such as friends, step-brothers/sisters, nephews/nieces, and cousins, the value of the amount received is more than ₹50,000, then the entire amount is taxable.
Read more about Tax on Gift: Rules and Exemptions As per Income Tax Act in India | Quicko.

Hope this helps!

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person “x” is having 4 parents .
2 biological parents and 2 adopted parents .
Are the assets received as gift/transfer from all the 4 parents to the person “x” ; tax-free in the hands of the receiver ?



As per the stated case, the gift received is tax-free in hands of the receiver.