This is a perfect section for you if you are interested in enhancing your knowledge about Financial Matters. A few tips and tricks about Investing, Shares, Mutual Funds and Money Saving Schemes.

A trust for minor children eliminates clubbing of income

The gifts made to a minor child would similarly result in clubbing of income. Hence, from the point of view of tax planning a trust could be created for the welfare of the minor child with a specific condition that no part of income should be spent on the minor child during the period of minority.

If this simple technique is adopted then there will be no clubbing of income of the minor child with the income of the parents. The clubbing provisions do not apply when you make gifts to your major children.

Your major children are your great tax savers

All your major children can help you save your income tax. You can freely gift money to your major children without attracting the payment of gift tax. This amendment makes it a good idea to make liberal gifts to your major children so that the income, if any, arising from these investments in years to come can be taxed in the hands of your major children.

For example, if you have fixed deposits let us say of Rs 20 lakh (Rs 2 million) and you have a major son as well as a major daughter then it makes sense to gift away Rs 500,000 to each of them.

After receiving the gift amount the children also make investment in bank fixed deposit and each of them receives yearly interest of say, Rs. 45,000. On this amount the son as well as the daughter will not pay income tax because the amount is below the exemption limits of Rs 150,000 and Rs. 180,000, respectively.

Thus your major children can now be great source of tax saving and you can enjoy the benefit of lower income tax incidence in the family as a whole. If, however, due to some reasons you do not feel inclined to make huge gifts to your major children, then you may give interest-free loans to your major children so as to legally reduce your taxable income. It is lawful to grant interest-free loans to your major children from your own funds.
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