How Parents can help you to save tax

How mom and dad can cut your tax


Right from birth, parents are always there to protect you. Now even when you feel independent, parents will be there to help you indirectly by letting you save more tax. They can bring down your tax liability in various ways, provided they are in a lower tax bracket or already retired. If your mom or dad falls in lower tax bracket, you can invest money on their name to save more income tax. It is not just income tax, but you may even earn higher interest as interest rate for senior citizens is usually more.

There are different ways by which you can save income tax by involving your parents directly or indirectly. Find below some of the ways to save more tax.



Invest in their name


You can invest money in your parents’ name if anyone of them falls under lower tax bracket. Every individual enjoys a certain exemption limit; e.g. in India, every adult gets a tax exemption of Rs 160,000/- ($ 3,600) every year. So, if you earn 160,000 or less, you do not have to pay any income tax. You can transfer some money to your parents’ account and invest in their name. It is not just limited to investment in banks; you can even buy shares and save 15% short term capital gain tax if the basic exemption limit has not been crossed.

Pay rent to your Parents


You can surely avail HRA exemption if you live with your parents. You can pay rent to them, but remember rent received will be taxable for your parents and the property must be registered on their name. So, if your parents fall in lower tax bracket, it will surely be helpful for you to save some tax.




Minimize losses in share market and save capital gain tax


As you know you can offset your short term losses with short term capital gains; but what if you have long term capital losses. You can not offset long term capital losses with long term gains or short term gains, so it is a complete loss of money. But if you will involve your parents, they can help you offset these long term losses against a gain from other assets such as property, debt funds, etc. and carry forward unadjusted loss for up to 8 financial years.

If you had bought some shares that are making loss in long term then you can make your parents buy these shares through off-market transaction. Off-market transaction is a private deal where no securities transaction tax is paid and the sale should be at the market price of the shares. So, open a demat account for your parents and minimize your losses.






Health Insurance Policy


Though taking a health insurance policy is always recommended, but it also helps you to save tax. Your taxable income can be reduced by up to Rs 15,000 if you take a health insurance policy, and in case your parents are senior citizens, there will be an additional deduction of Rs 20,000 for health insurance policy. Even if there would be no extra tax benefit, you must take health insurance for your parents; after all they also looked after your needs when you were a child.


Above are the few ways to save more income tax by involving your mom and dad. So, never overlook your parents, they will always be helpful throughout your life.