How Your Parents Can Help You Save Tax?

While parents are a great asset for the family, they can also benefit you financially by helping you save tax

When it comes to taxes, everyone is always looking for opportunities to pay the least possible amount. Income Tax rules provide a number of legal options to save tax. However, not all such options are widely known. In that context, let us take a look at how your parents can help you save tax.

Direct tax saving options

You can access the various deductions and exemptions available for senior citizen parents under the Income Tax rules. For example, you can claim deduction of Rs 50,000 for health insurance premiums paid for your senior citizen parents (Section 80D). Similarly, medical expenses of up to Rs 50,000 can also be claimed if health insurance is not available. For any specific diseases such as kidney failure, cancer, etc., you can claim deduction of up to Rs 1 lakh under Section 80DDB.

If you are taking a home loan, you can take it jointly under the name of your parents. You can then claim Rs 1.5 lakh tax benefit under Section 80C for principal repayment and Rs 2 lakh under Section 24(b) for interest paid on a self-occupied home loan. Another option you can use is Section 56(2), wherein any money or property you receive from your parents is exempt from taxation.

Indirect tax saving options

Investing in parent’s name – If your parents have zero income or fall into a lower tax bracket than your own, you can transfer some investments in their name. This will reduce the overall tax burden. For example, you can give money to your parents, who can then invest it in their names.

Renting property to parents – If you have multiple homes, you can show one of them as rented to your parents. In this case, your parents will pay rent to you. This rent can be claimed as HRA exemption in the case of salaried individuals.

Higher interest rates on FDs – There are various investment options that provide a higher interest for senior citizens. For example, your parents can earn 8.2% interest per annum via the Senior Citizen Savings Scheme (SCSS). Similarly, your parents can also opt for the Pradhan Mantri Vaya Vandana Yojana (PMVVY) that has higher earning potential than standard fixed deposits.

Capital gains transfer to parents – You can gift your assets like your stocks, property, mutual funds, etc. to your parents. When they sell it, the capital gains tax will be less if your parents fall into a lower tax slab.

Tax-free interest on savings account – Under Section 80TTB, senior citizens are eligible for Rs 50,000 tax-free interest. This applies to various investments such as bank savings accounts, FDs and post office deposits. You can give money to your parents and ask them to invest in such options.

Pay salary to your parents – This will be applicable if you own a business. You can hire your parents in roles such as customer support, accounts or admin. The salary you pay to your parents can be shown as a business expense. This will reduce the taxable income.