Those who have reached maximum of their tax saving on their own can rely upon their family for further tax savings. Use your parents and parents-in-law’s low taxation rates in saving income tax in legitimate way.
We can do this by giving away portion of our funds to parents or parent- in-laws as a gift or as a loan. If we invest these surplus funds, the interest on these investments will be taxable in our hands. Instead the surplus fund can be loaned out to our parents with zero interest or gifted whichever way we want so that if they invest in funds like senior citizen savings account or monthly income savings in post offices, they can get interest around 9% or so. If we have both mother and father aged between 60 and 80, then there will not be any tax up to income of Rs.2.50 lakhs for each.
So if there is no income for parents, then one can invest maximum upto 28 lakhs in the name of mother and another 28 lakhs in the name of father as the prevailing interest rate is only around 9% per annum. In order to play safe, it is better to get loan bond from them for the money invested in their name so that after their death, the same investment can be received back or alternatively the nominee can be the actual children investing. Thus the surplus money with us can be wisely invested in the name of parents without any tax and it helps to those who send money to their parents on periodical basis. Apart from this, if the investment is in senior citizen savings, then they will get tax rebate under section 80C upto 1.50 lakhs. If we take this into account, then one can invest upto 40 lakhs in the name of one of his parent. They need not file income tax returns also as there is no taxable income.
In case of parents of 80 years and above, upto 5 lakhs exemption is there and accordingly calculations can be made. The applicable tax rates for FY 2014-15 for senior citizens are given below:
For Individuals aged 60 years and above but below 80 years (Senior Citizen):
Income Tax Rate
Upto 250,000 Nil
250,000 to 500,000 10% of the amount exceeding 250,000
500,000 to 1,000,000 Rs.25,000 + 20% of the amount exceeding 500,000
1,000,000 & above Rs.125,000 + 30% of the amount exceeding 1,000,000
For Individuals aged 80 years and above (Very Senior Citizen):
Income Tax Rate
Upto 500,000 Nil
500,000 to 1,000,000 20% of the amount exceeding 500,000
1,000,000 & above Rs.100,000 + 30% of the amount exceeding 1,000,000
Tax Credit: Rs. 2,000 for every person whose income doesn’t exceed Rs. 500,000