As a parent, you may invest in various child plans like child insurance to secure their future. However, it is prudent that you choose the investment instrument carefully to enjoy tax benefits and returns on investments. Read on to know a few tax-saving tips.
When looking for the best investment opportunities to save for your child, it is essential that you are financially astute. You must think about where and how much you will invest and be aware of the investment cost in terms of the tax liability associated with the investments.
It is crucial to invest in the right child insurance plan that provides maximum coverage at an affordable premium; at the same time, it is critical to save your annual taxes. Here are a few important things you must keep in mind while securing your child’s future.
Invest in PPF
Public Provident Fund (PPF) is a great investment avenue that allows you to park your savings for the long-term and get assured returns. It is a risk-free investment and is best suited for all. Also, it allows you to gain valuable tax benefits.
You can open a PPF account in the name of your child, even if they are less than 18 years old. You can invest up to Rs. 70,000 in a financial year.
Choose the right investments
When you invest in any scheme for your child, the income you earn from it is considered as part of your annual income, and it will be taxable as per the usual tax bracket. However, you can be smart with your investment choices and get tax benefits.
For example, you can avoid investing in short-term fixed deposits as its interest is taxable. Instead, you can invest your hard-earned money in long-term assets like equity funds or in child investment plans where your child will receive an income when he becomes an adult.
You can invest in 10-year cash certificates for zero-coupon bonds. These investments not only help you get returns in the future but also are tax-efficient.
Purchase an investment policy
One of the best ways to save taxes on child investments is to purchase a child insurance policy. The premium you pay for the policy is subject to tax exemption up to Rs. 1.5 lakhs under Section 80C of the IT Act.
You can also consider buying medical insurance for your child and get an additional tax benefit under Section 80D. Also, the policy will help you cover the medical costs if your child gets diagnosed with any illness or disease.
Cash gifts are tax exempt
If your child receives any monetary gift from your relatives or grandparents, the amount is completely tax-exempt as per the IT rules. However, if the gift received is more than Rs. 50,000, it is subject to tax.
An exemption to this clause is that if the money received is through inheritance or as an award from an education institution, it is total tax-free.
Now that you know the different ways to save taxes on child investments, be wise with your investment choices and save your annual tax liability while you build a corpus for your child’s future.