What are the various ways of savings to avoid income tax?

Tax benefits by indirect investments?

• I just saw an article in Yahoo which says tax benefits can be claimed by investing funds in the name of parents - senior - and direct children.This was shown as:"Reproduced From Money Today. © July 2011. LMIL" Can some one thro more light on this as to how to claim this benefits and this comes under which section, 80c, ccc ccd etc. Or is it coming under any other section. Investing via children saves tax Pritam P. Hans, Money Today, On Wednesday 6 July 2011, 12:25 PM Do you have some excess cash that you want to invest? Maybe you can think of an indirect method of investing (that is not in your own name), and save some tax on the income. Investing in assets or financial instruments directly in your own name will increase your tax liability and could also push you into a higher tax bracket. You can take a slightly circuitous route on investments for better mileage. One way of saving on taxes is to gift your children and parents assets and cash for investments. As per the current laws, any gift received in cash or kind exceeding Rs 50,000 is taxed in the hands of the recipient as "income from other sources". However, this rule does not apply to gifts received from relatives. Additionally, any gift received on the occasion of your marriage, under a will or inheritance is not taxed in your hands. So who is a relative and what is a gift for the purpose of claiming tax benefits? "Relatives, for the purpose of taxation, include spouse of the individual, siblings, brothers and sisters of the spouse, brothers and sisters of the parents, and any lineal ascendant or descendant of the individual or the spouse," says Vikas Vasal, executive director, KPMG India. As for gifts, the income-tax laws say any transfer of money in cash or through a cheque as well as transfer of movable or immovable assets, such as property, shares and securities, jewellery, paintings and sculptures, is considered as a gift. When you transfer a property, you may have to get the transfer registered, which attracts stamp duty and registration charge. "The Indian tax laws do not contain mandatory provisions to have a gift deed (a registered legal document with appropriate witnesses) in case of transfer by way of gifts. However, it is always preferred to have a gift deed so as to avoid any gift being considered as taxable or being considered as unexplained cash, investments or assets," says Sonu Iyer, partner, tax and regulatory services, Ernst & Young, India. Though there is no tax on gifts, all gifts in excess of Rs 50,000 (other than those from relatives) and income generated through them get clubbed with the recipient's taxable income. However, income earned by assets gifted to minor children, spouse and son's spouse are included in the income of the donor for taxation. If you want the money earned to be treated as independent income of your minor children, spouse or son's spouse, you will have to prove that the recipients had used their own acumen for making money from the gifted assets. It might not be easy to satisfy the taxman that the income through the asset you gifted is not a passive investment income and has been earned independently by your spouse or minor children. So the easiest way of saving tax is by gifting money or assets to your major children and parents who don't have any income of their own. Let's assume that your parents are senior citizens (above 60) and have no income. You can gift them any amount of cash for investing in highreturn instruments such as senior citizen's savings scheme. As senior citizens do not have to pay any tax for annual income up to Rs 2.5 lakh, the interest income does not become taxable unless it exceeds this exemption limit. This means you can invest up to Rs 25 lakh through each of your senior parents without any source of income if the annual interest or return is 10%. You can invest up to Rs 50 lakh through your senior parents and have a tax-free annual income of Rs 5 lakh. If your parents are above 80, they are entitled to tax-free income up to Rs 5 lakh per year for "very senior citizen" category introduced in the 2011-12 Union Budget. You can invest up to Rs 50 lakh through each of your "very senior citizen" parents in instruments that give 10% annual return and avoid the taxman for interest income up to Rs 10 lakh earned by both of your parents together. You can save a total of Rs 3 lakh (30% of Rs 10 lakh earned as interest income) in tax each if you are in the highest tax bracket. So you can invest a total of Rs 1 crore through your parents and save up to Rs 6 lakh in taxes on the interest income of Rs 10 lakh. If you gift the money to your major daughter for investment, the interest earned from the amount will be taxable only after it crosses the exemption limit of Rs 1.9 lakh annual income. New User? Register Sign In Help Make Yahoo! My Homepage Mail My Y! Yahoo!

• Answer:

  There are few section under Income Tax Act 1961 which provide deduction from income by way of indirect investment in the name of parent, children, spouse, dependent etc. A brief detail of these sections are as under" 1- Section 80C- Life Insurance Premium for policies in the name of children, spouse and self upto Rs 100000.00 can be claimed under this section. 2- Section 80D- Medical Insurance Premium- For self, spouse and dependent childred upto Rs 15000.00 for parent upto Rs 20000.00 can be claimed under this section. 3- Section 80DD- Maintenance including medical treatment of a handicaped dependent upto Rs 100000 can be claimed under this section.