GOODBYE `BENAMI' Government is set to make `benami' property laws more stringent. Here are ways in which investing for family can help you save tax
Bad news for tax evaders. In another move to curb black money transactions in the country , the government has recently proposed to make `benami' property laws even more stringent. According to this law, all those asset owners who fail to produce a legal proof of source of earning that allows them to own the asset risk it being termed `benami'. Here, the property means not just real estate but any kind.
The new law is likely to say that property acquired in the name of any other person (other than spouse and unmarried daughter) -- brother, sister, father, mother, son --risks being confiscated and lead to jail time.
However, no one stops you from saving tax using legitimate ways.
Here are eight ways to escape tax legally when investing in the name of family members.
1 Invest the gifted money in a tax free instrument:
Exhausted your 80C limit? Transfer some money to your non-working spouse or a minor child and invest that sum in a tax-free instrument such as a PPF or ELSS scheme, tax free bonds and Ulips. The gift tax rules won't apply to these relations. You can transfer any amount you want. Also, since you are investing in a tax-free instrument, even the clubbing of income clause won't affect your tax liability .
2 Deduction available in case of minor child:
You can claim a small deduction of up to `1,500 per child for two children in case of investments made in the name of minor children. 3 There is no tax on long-term gains:
Invest the gift-money in stocks and equity mutual funds and hold for more than a year. There is no capital gains tax on equity assets held for more than 12 months. In case of gold and property and debt-oriented mutual funds the holding period is 3 years.
4 The clubbing is only at the first level.
If earnings are rein vested, it will be treated as your relative's income. Meaning, second year onwards, you'll have no further tax liability on that money . You can use this strategy even if your spouse is earning, but falls in a lower tax bracket.
5 Adult children are big tax savers:
The clubbing rule does not apply once your child turns 18. Since the person will be treated as a separate individual for all tax purposes, you can transfer money and enjoy another `2.5 lakh basic exemption along with all the other deductions and benefits that any other taxpayer enjoys. What's more? You can start investing if the child is 17 and will turn 18 before 31 March of that financial year and get the benefit for the entire year.
6 Clubbing not applicable in case of parents:
You can also invest in your parent's name and the best part is the clubbing rule won't be applicable here. Also, there is no gift tax on the money you give to your parents. So, make use of their basic tax exemption limit--`2.5 lakh for up to 60 years, `3 lakh for people above 60 and `5 lakh if they are above 80 years of age. In case, they are exceeding the exemption limit, help them save taxes by investing in a tax-free options.
There are huge tax benefits if you live with your parents and the house is in their name. You can pay rent to them and claim HRA benefits. Your parents on the other hand can claim a flat 30% of the annual rent as deduction for maintenance expenses. They will be taxed for only the income above their basic tax exemption limit. You get a bigger benefit if the house is co-owned by your parents. Then they can split the earning from rent and show separate tax liability. This taxable money can further be invested in their name under tax-free options such as the Senior Citizens Saving Scheme, five-year bank deposits or tax saving equity mutual funds. You can also consider buying health insurance for up to `25,000 (`30,000 in case they are above 60 years) and claim deductions under Section 80 D.
7 Show the monetary transaction as a loan:
The clubbing provision is applicable on earnings from gifted money. However, if you show the transaction as a loan where your relative pays you a nominal interest, income from the investment will not be taxable.
8 Barter deals to bypass tax:
Similarly, if your relative can transfer jewellery or any other as set, say a painting, worth the value of the transaction and the income generated from it won't be taxable.
Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1.ICICI Prudential Tax Plan
2.Reliance Tax Saver (ELSS) Fund
3.HDFC TaxSaver
4.DSP BlackRock Tax Saver Fund
5.Religare Tax Plan
6.Franklin India TaxShield
7.Canara Robeco Equity Tax Saver
8.IDFC Tax Advantage (ELSS) Fund
9.Axis Tax Saver Fund
10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
Invest in Tax Saver Mutual Funds Online -
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
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