There are many ways in which people in India can save taxes under different sections of the Income Tax Act. One way to reduce tax expenditures is to gift money or invest in the name of specific relatives.
However, experts suggest that it is better to invest the gifted money, as it not only helps in saving taxes but also to generate tax-exempt income according to the different sections provided by I-T laws in the country.
While gifts received by anyone over Rs 50,000 are taxed on "income from other sources" under Income tax laws, there are special exemptions for gifts given to some specific relatives, such as older children and parents.
It should be noted that any amount awarded to family members such as parents, older children, and in-laws can not only be born of them completely tax-free but also reduce your total tax outlay. In the case of parents/in-laws, the money you intend to donate should ideally be invested in tax-free items.
Any investment in the name of your parents or children can help save taxes and even generate income from the Internet tax-free. There are several ways that investing or gifting money to your parents/relatives can reduce your tax liability.
Assuming both parents are citizens over the age of 60, their primary tax credit would be Rs. 3 lakh. It is Rs. 5 lakh elderly people, over 80 years old.
If the parents don't have high incomes, you can avoid taxes by giving them money. They can then use that money to invest on your behalf in tax-free schemes and earn additional interest income. If the earned income is less than Rs 5 lakh, they will not have to pay tax on it.
You can also invest in your parent's name in a PPF chart if you have exhausted your own limit of Rs 1.5 lakh. This will help you reduce your tax expenses.
Likewise, if you have excess cash, you can also invest in your older child who is 18 years old or older. Instead of giving them money, you can invest the same amount in their name. The money will not attract any gift tax.
Assuming the child has no income of his own that is above the taxable limit of Rs 2.5 lakh, any income earned after the money is an investment will not qualify for tax.