Tuesday, May 22, 2012

Great Tax Saving Ideas

Your major children are your great tax savers
All your major children can help you save your income tax. You can freely gift money to your major children without attracting the payment of gift tax. This amendment makes it a good idea to make liberal gifts to your major children so that the income, if any, arising from these investments in years to come can be taxed in the hands of your major children. For example, if you have fixed deposits let us say of Rs 20 lakh (Rs 2 million) and you have a major son as well as a major daughter then it makes sense to gift away Rs 500,000 to each of them.

After receiving the gift amount the children also make investment in bank fixed deposit and each of them receives yearly interest of say, Rs. 45,000. On this amount the son as well as the daughter will not pay income tax because the amount is below the exemption limits of Rs 150,000 and Rs. 180,000, respectively.

Thus your major children can now be great source of tax saving and you can enjoy the benefit of lower income tax incidence in the family as a whole. If, however, due to some reasons you do not feel inclined to make huge gifts to your major children, then you may give interest-free loans to your major children so as to legally reduce your taxable income. It is lawful to grant interest-free loans to your major children from your own funds.

Your parents and in-laws can save you taxes
Might sound incredible to most readers but the fact is that your own parents as well as your own in-laws can become legal tools of tax planning for you and your family. If you want to achieve this dictum then all you are requested to do is just to give away a portion of your funds either as a gift or a loan to your parents as well as your in-laws so that in years to follow your income tax burden become light as the income on funds transferred by you to them which would bring in income would be taxed in their hands.

With the increase in the limit of exempted income for individuals, women tax payers and senior citizens, it is now a great time for having income tax files for all.

Separate income tax file for a daughter-in-law
Under Section 64 (1) (a) of the IT Act, if the father-in-law or mother-in-law makes any gift to his or her daughter-in-law, i.e., their son's wife, on or after 1 June 1973, the income arising to the daughter-in-law in respect of the gifts so made would be liable to be included in the total income of the father-in-law or the mother-in-law making the gift.

However, where such a daughter-in-law receives a gift not from her father-in-law or mother-in-law or her husband but from her father or mother or uncle or aunt or uncle-in-law, etc. then the income arising to such daughter-in-law in respect of such a gift would be liable to be assessed as the income of the daughter-in-law separately. Such income would not be included in the total income of the father-in-law or the mother-in-law or the husband of such a lady.

Besides, if the daughter-in-law makes an investment of such gifted amount, the income arising to her out of such investment would also be liable to be assessed separately. Similarly, if she were to join a partnership firm as a partner with the help of such gifted money, the interest arising to her would be assessable to tax in her separate assessment. Such interest or salary as a working partner would not be liable to be included in the income of her husband or father-in-law or mother-in-law or any other relative. If she is a partner of any firm carrying on any business, her husband could also be a partner in the same firm. Now, from assessment year 1993-94 her share income from the firm would not be clubbed with the income of the husband.


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