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Seven ways to earn tax-free income
December, 21st 2015

Use these strategies to make the most of opportunities offered by tax laws and reduce your tax liability.

USE INDEXATION TO NULLIFY TAX

High inflation has been a curse for inves- tors in the past few years, but for some, it has been a boon. Tax rules allow inves- tors to adjust the cost of an asset to infla- tion during the holding period.

INVEST THROUGH A NON- WORKING SPOUSE

If you gift money to your wife and it is invested, the taxman will club the earning with your income for the year. But if you invest in tax-free instruments like PPF or tax free bonds, there is no tax implication.

AVAIL OF MINOR EXEMPTION

If you invest in a minor child's name, the income is clubbed with that of the parent who earns more. However, there is a small `1,500 exemption per child per year from such investments. You can avail of this for a maximum of two children.

TAKE HELP OF AN ADULT CHILD

After a person turns 18, he is treated as a separate individ ual for tax purposes. His earnings are no longer clubbed with his parent's income. Save on tax by investing in the name of an adult offspring.

PARENTS CAN HELP TOO

Your parents can also help you avoid the tax net. If any or both of your parents do not have a high income, while you are in the highest 30% tax slab, you can invest in their name to earn tax-free income. Such income is not clubbed.

REVIVE YOUR FORGOTTEN ULIP

Most of us have Ulips in our portfolios and many of us have stopped paying the premium. If you are part of this crowd, you can use your Ulip to earn tax-free income. Pay all the pending premiums at one go and earn tax free returns. 7 FORM AN HUF WITH INHERITED WEALTH Double your basic exemption and savings limit simply by establishing a Hindu Undi- vided Family (HUF). The tax authorities treat the HUF as a separate entity. It is entitled to the same tax benefits.

 

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