Save tax by investing in your child's name. Experts explain

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Every parent wants to ensure a bright future for their child. Well, you can invest in your child’s name. This will help in solving two purposes- one you will be able to save for your child’s future as it can meet the kid’s education as well as other necessities. Second, this will also help you in saving taxes.

Investments in the name of children in the Public Provident Fund (PPF), Sukanya Samriddhi Yojana, which is meant for the girl child,  life insurance plans and certain mutual funds will help in building a large corpus for them in the long run.

“You can invest in your minor child’s name to provide for their financial goals such as education and marriage. The income from these investments, either through dividends, interest or capital gains, is added to the parent’s income who earns a higher income. This is called clubbing of income. Moreover, this income is taxed according to the parent’s applicable income tax bracket,” said Archit Gupta, Founder and CEO – Clear.

Tax-saving instruments 

“You can invest in the PPF account in your child’s name. This is eligible for the purpose of deduction under section 80C up to the limit of Rs. 1.5 lakh. Interest accrued on the PPF investment is also tax-free. Also, investment in specified mutual funds, Sukanya Samriddhi Yojana, ULIPs, or taking a Life insurance policy in your child’s name can save you from taxes by claiming these as a deduction u/s 80C. Also, the premium paid for the Medical health insurance policy taken for your child is allowed as a deduction u/s 80D,” said Abhishek Soni, Co-founder and CEO, Tax2win.in.

Invest in PPF, Sukanya Samriddhi

“You can choose investments such as PPF and ELSS that qualify for the Section 80C Income Tax Deduction up to 1.5 Lakh per annum. PPF qualifies for the EEE income tax regime where, in addition to the Section 80C tax deduction, interest earned and maturity amount are tax-free. Moreover, long term capital gains from ELSS up to 1 Lakh are tax-free,” said Archit Gupta.

You can open a Sukanya Samriddhi Scheme in the name of your minor girl child below ten years of age. “It permits a maximum investment of 1.5 Lakh per financial year and qualifies for the Section 80C tax deduction. Moreover, accruing interest and maturity amounts are tax-free,” Gupta added.

Opening savings bank account

You can claim up to 1,500 exemption per minor (maximum 2 minor children) child for any income earned from investments such as bank FD or savings bank account, and other investments in your minor child’s name, Gupta explained.

Spending on tuition fees

Tuition fees are eligible for tax exemption of up to 1.5 lakh under Section 80C.

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