Investing in the name of children and tax benefits

Income Tax Tax Savings & Deductions
1

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?

2

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.

3

Thanks for explaining the investment avenues.

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

4

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 â‚ą50,000, 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!

1 Like
5

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 ?

@Shrutika_Shah
@Sakshi_Shah1

6

Hi @HIREiN,

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