Gifting Cash to your wife: Nothing makes women happier than cash. Under the Income Tax Act, gifting your wife with cash does not come under tax implications. Only if the money is invested and income is earned through it, it gets clubbed with the husband’s income for Income Tax purposes. You can get your wife to invest the gifted money in tax free instruments, which means even if this income is clubbed with your income, it will not attract tax. Further, if money earned is reinvested, it is considered to be your wife’s income and will not come under your tax bracket. While the tax slab for women is high, there is a chance your spouse may help you earn tax free income.
Investing in Fixed Deposits in your children’s name: Income earned by a minor child is clubbed with the income of the parent. However, such income is exempt upto Rs. 1500 per child per year for a maximum of two children. Fixed Deposits which have always been the darling of middle income families can be used effectively here. Considering an interest rate of 10% per annum, you can safely invest Rs. 15,000 per year per child to get tax free income. This option is available for maximum of two children. If you opt for the annual payout option, you could gain more, as the cumulative option will earn you an income beyond the exemption limit in a few years time.
Invest in the name of an adult child: After turning 18, a child’s income is considered his own and not clubbed with his parents. Gift your money to your child, ask him to invest in the tax free investment funds and you have just earned a tax free income. Adding glitter to the gold is the provision that if any individual turns out to be adult during that financial year, he is given the benefit for the entire year. This proposition can save you from Inheritance Tax which the Government is planning to bring in.
Gifting your parents: If your parents do not have a high income, you can invest in their name to earn a tax free income. For senior citizens, the basic tax exemption is Rs. 2.4 lakhs. Also there is no clubbing of income in case of parents as it is there in the case of children or spouse. Some investment instruments, like Fixed Deposits carry a higher interest rate when invested in Senior Citizens name.
Gifting to your loved ones is an essential part of Indian culture and is special. This becomes even more special on a day like Valentines Day. What better way than gifting something which will help in the growth of wealth for both yourself and for your loved ones? However, remember to carefully consider the tax aspects while gifting.
Happy Gifting! #gettingyourich