Giving best to our children is our utmost priority in spite of the sky-rocketing prices and growing expenses. Investing in their future is one of the major concerns for every parent. But child plan investment can give you Income Tax benefits along with a bright future to your children. There are seven advantages that you can relish on many expenses and investments made on your child’s name.
Interest on Education Loan: Pre-planning for children’s higher studies has become very essential as getting education is becoming more and more expensive. Taking up a loan is the option that most of us go for. But it leaves us with a burden of repayments. While coping up with repayments, one can partially gain from this investment as the interest portion on education loan is completely tax deductible under section 80 E. The loan taken up must be for a full-time graduate course.
Health Insurance Premium: The premium paid for health insurance that we take for our children can be claimed as a deduction, up to Rs 15000 under section 80D in a year.
Payment of Tuition fees: The tuition fee that most schools, colleges and universities have in India can be deducted under section 80 C up to R1 lakh in a year. Restricted to two dependent children, the amount of deduction should pertain to the actual paid tuition fee. Each parent can claim the benefit for up to two children as husband and wife have a separate limit.
Expenses on treatment of disabilities and certain ailments: If any parent has spent any amount for the treatment of specific disabilities and illnesses of his child then he can claim deduction from his income under two sections – 80DD and 80DDB. According to section 80DD, the expenses incurred towards medical treatment of dependent children suffering from a disability are entitled for deduction. For a normal disability, the limit of deduction is Rs 50,000 (impairment of at least 40%). For severe disability, the limit is Rs 1lakh (impairment of 80% and above).
According to section 80 DDB, the expenses incurred towards treatment of specified illnesses for children can be deducted up to Rs 40,000.
Deduction of allowances: A mass of allowances paid for expenses aiming the children is specified by the tax law which are allowed by an employer as an income tax deduction of the employee. It includes hostel allowance of Rs 300 per month per child, up to a maximum of two children. The second one is an education allowance in which Rs 100 per month per child is exempted from income up to a maximum of two children. Third one is medical expenses incurred for dependent children. This expense is allowed as a deduction of up to Rs 15,000 per year on showing medical bills.
Minor child’s income: The income earned from the investments made in our child’s name will be clubbed with your income. However, a claim up to Rs 1,500 as a deduction on this income can be made if the investment anywhere in a minor child's name generates an income. For example, investment of up to Rs 15,000 in bank FDs offer an annual return of 10% and is exempted from tax.
Formation of a trust: Setting up a trust in a minor child's name can save tax. You just need to make an irreversible transfer to the trust so that the money will not be claimed. The income made through the investments will be allowed for tax deductible. However, the trust has to pay tax on this income but if the income is clubbed then the total tax liability will be lower.