If you are in a high tax bracket and genuinely helping your parents in their finances, you can save some tax by following small tips. Investing in Name of Parents will help to lower your tax burden.

Investing in name of parents also allows you to help parents by gifting those income or health benefits. Here are the ways to save tax by investing in name of your parents.

Some of the ways by which an individual can save Tax by investing it in the name of their parents are:

Health Investment

A taxpayer can claim up to Rs. 50,000 from tax by purchasing mediclaim which will come under Section 80 D of Indian Income Tax.

Rs 50000 is deducted if parents are above the age of 60 and up to Rs 25000 below 60.

Claim Rent Allowance

The individuals can also save their taxable income by paying rent to parents in case they are living with parents or at their  Parental House. This comes under Section 10(13A).

For this, the house should be properly owned by their parents which means the allowance is given to the rent paid to the owner of the house which could be anyone i.e., a family member or any other person.

If the rent paid is more than Rs 1 lakh a year, then the PAN number of the parent will have to be mentioned.

To avail of this allowance, the individual should have all necessary receipts of rent payments. Ensure rent is paid by bank transfers.

This Rent allowance ranges up to 30% of the income of individuals who can be self-employed or salaried. Also, know this, the rent is income for parents. They should suitable show in their annual tax filling. While the rental income will be taxable, they can claim a deduction of 30% for annual maintenance and property tax.

Make Investments in name of parents

Individuals can save their money or profit by transferring it into gifts to their parent’s account or can invest their money in name of their parents as a Gift.

This comes under Section 56 of the Income-tax Act under the head of Income from Other Sources.

If your parents are in a lower tax bracket or nil tax bracket they can save tax up to Rs 5 Lakhs on the returns from these investments.

There is also a debate whether this amount of gift is tax shifting or evading. This is dealt with Clubbing Provision of income tax. A genuine gift, properly documented & irrevocable, with no intent of tax evasion, will have no problem. In case of Investing in Name of Parents and earn returns with a motive of tax evasion or lowering it will be dealt with clubbing provisions.

Sell Shares and offset losses

If Individuals are suffering from long-time market losses then they can sell their shares to their parents in an off-market transaction as it does not involve any exchange. Searching for sellers in the off-market transaction is difficult. You can save time spent finding buyers.

These long-term losses can be set off with long-term profits and you can save taxes on capital gains.

But one thing – transaction should be done at fair market value and payment should be made by cheque.

These are some easy and legal ways to save tax by investing in name of your parents.

This article has been researched and co-written by Kapil Pandey (Intern@thewealthwisher.com)