SECURE YOUR PARENTS AND SAVE TAX Most of us end up paying more taxes even after exhausting all possible ways of tax exemption, while few of us are aware that dependent parents could be a boon in tax planning. Heres how wise tax planning could save you from the tax demon: Investing surplus in a parents name You can take an indirect approach to investing surplus funds by the way of gifting your parents. If both of your parents are senior citizens with no income, it means each of them enjoys Rs. 2.5 lakh tax exemption every year. You can invest up to Rs. 2.5 lakh through each of your parents for an investment return of up to 10 per cent which will be tax free in the hands of your parents. If you invest the same amount in your name, on the other hand, it is likely to be taxed. It is evident from the above table that any individual within the tax bracket of 30 per cent can save up to Rs. 1.5 lakh a year by investing through parents. Keep your parents insured People often ignore buying insurance for their parents as mostly they are already covered by their employers.A better way to work out this situation is to buy a separate health insurance cover for your parents. This could sufficiently provide for medical emergencies and at the same time allow you to claim a tax deduction of up to Rs. 15,000, or Rs. 20,000 (in case of senior citizens), under Section 80D. Pay rent if living in parents house You can claim house rent allowance even if you are residing at a property registered in your parents name. It is recommended that you enter into a rent agreement with your parents and actually pay them rent each month. If your parents are retired and do not have any taxable income, this rental income could be tax free in their hands depending upon the rent you agree to pay. It would be a cherry on top if the house is jointly owned by your parents as the income could be divided among them separately. Sell shares to parents to offset loss If you have kept loss making shares in your portfolio for over a year, you can consider selling them to your parents in an off-market transaction. A long term capital loss on shares could be set off against long term gains if you sell the shares in an off-market sale, which is a transaction without going through the exchange. Finding buyers off-market is difficult, therefore, you could sell them to your parents in order to set off losses.The main criteria for this arrangement is that shares should be sold at market price and the payment should be made via cheque. All these methods are legitimate ways of tax reduction and come handy for tax saving. They could cut down your tax outgo in a big way.
Posted on: Sat, 18 Jan 2014 08:24:13 +0000
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