Save tax by gifting money to your Adult Child

Your adult children can help you save tax. Gifts (including money) to an adult child are exempt from tax. And if your adult child invests this money in assets (such as fixed deposits, PPF investments or purchasing any other asset) any income from these is taxable in the hands of the adult child. Clubbing provisions do not apply to Adult Children. Adult child is 18 years old or more.

[However, if any money is invested in the name of a minor child, clubbing provisions apply. Any income from this investment shall be clubbed with the income of the parent whose income is higher (without including clubbing)].

You can gift any amount of money to your adult child (especially those who are still studying and not earning) without incurring a corresponding tax liability!

This can help you reduce you tax liability significantly – since income from money invested in the name of an adult child is taxable in their hands, and if the total income of the adult child is less than Rs 2,50,000 (minimum income which is exempt from tax for financial year 2014-15)you can reduce your tax outgo significantly. Say if your transfer Rs 5,00,000 to your adult child which he invests in a fixed deposit and earns an interest of ~ 45,000. Since the child’s income is less than the minimum exempt income of Rs 2,50,000 – the interest income is tax free!

Have a great weekend ahead!

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