Investing in the name of parents and parents-in-law can not only help save tax but also ensure higher post-tax returns on investment.

Saving tax through family! Surprised! Yes, we can save tax through our family members, i.e., parents, major children and wife. To save tax through family members we need to invest in ways that our tax burden shifts to our family members and we can take the benefit of income tax slabs. Saving tax through family means not only saving in tax but also means higher post-tax returns on your investment.
Here is how we can save tax through our family members.

Save tax through parents

You can save tax through parents as well as through parents-in-law. To achieve this goal, you need to give away a portion of your funds, either as a gift or a loan, to your parents as well as your parents-in-law so that in years to follow your income tax burden becomes lighter as the income on funds transferred by you to them would bring in income which would be taxed in their hands.

Let’s assume that both your parents are senior citizens. Here’s how you go about it. Income tax deductions allow senior citizens a tax-free income of Rs 3 lakh. To exhaust this limit, say, you gift `28 lakh to each parent in cash. Of this, both can individually put Rs 15 lakh in a senior citizens savings scheme that earns a return of 8.3% and pays interest every quarter. Each will get yearly interest of nearly `1.2 lakh. If they invest the remaining `13 lakh each in the State Bank of India’s (SBI) fixed deposit (FD) of eight years (at an interest rate of 7.25%) that pays interest each quarter, it will fetch them each an income of nearly `0.95 lakh annually. That means your parents have individually earned `.215 lakh each year. With the tax-free limit at `3 lakh they don’t even need to file tax returns.

Same planning can be done for parents in laws.

Save tax through major children All your adult children are as solid as a rock to help you save income tax. After October 1, 1998, the provisions relating to gift tax have ceased to exist. Now you are free to gift away your money to your children without attracting gift tax. Investment made by major children out of the gift received by you will be taxed in the hands of your children. If for any reason you are inclined to make gifts to your major children, then you may give interest-free loans to your adult children so as to legally reduce your taxable income.

It is lawful to grant interest-free loans to adult children from your own funds.

Save tax through your wife

Married taxpayers can make a substantial saving of income tax by setting up two separate independent income tax files, one for the husband and another for the wife. If your wife is already filing Income Tax Return then she may continue filing the return with her new surname (in case she has changed it) and address or with her old surname and address. However, care should be taken to ensure that no gift or transfer from husband is made to the wife as clubbing provision may get attracted.