Seven ways to escape tax legally

Seven ways to escape tax legally

Tax evaders are under more pressure now than ever before. However, no one is stopping you from saving taxes using legitimate ways.

Here are seven ways to escape tax legally when investing in the name of family members.

Invest gifted money in a tax-free instrument
Transfer some money to your non-working spouse or a minor child and invest that sum in a tax-free instrument such as PPF or ELSS funds, tax free bonds and Ulips.

The gift tax rules won't apply to these relations, including any of your or your spouse's lineal ascendants or descendants.

Deduction available in case of minor child
You can claim a small deduction of up to Rs 1,500 per child for two children in case of investments made in the name of minors.

This means you can invest, say, Rs 15,000 (or Rs 30,000, if you have two children) in a one-year fixed deposit scheme which gives an annual return of 10% and be exempt from tax.

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.

Clubbing is only at the first level
If earnings are reinvested, it will be treated as your relative's income.

This means the second year onwards, you'll have no further tax liability on that money.

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 Rs 2.5 lakh basic exemption along with all the other deductions and benefits that any other taxpayer enjoys.

Clubbing not applicable in case of parents
You can also invest in your parent's name and the best part is the clubbing rules won't be applicable here.

Also, there is no gift tax on the money you give to your parents.

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.


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