15.  Your Own Adult children Could Save you Tax – How ?

Perhaps you have never thought that your own adult children could save you tax. This sounds somewhat unbelievable but the fact is that taking advantage of the provisions of the Income Tax Act, 1961 one can surely save substantial amount of income tax especially by making gifts to one’s own adult children. What we are talking about is a perfectly legal method of saving income tax for yourself and your family. The subject matter contained in this article would be of practical utility and advantage to all those tax payers who have grown up adult children namely eighteen plus. Well, all you have to do is to just make a gift to your own adult child. The amount which you give as a gift to your adult children becomes their own money and any subsequent income arising thereon is treated as their own income which is not clubbed with your income.
For example, let us suppose you have, invested say ` 15 lakh which is earning income for you. Now, if you just gift away, say a sum of ` 5 lakh to your son or a daughter as soon as s/he turns eighteen the income which your adult child will derive from an investment of ` 5 lakh will not be added or clubbed with your income. In other words, whatever your income was till yesterday now gets reduced because of your having made a gift of ` 5 lakh to your adult child. Just by this one single tip you will be able to save a lot of income tax for you each year now onwards.

Sometimes, a question may arise as to what would happen with regard to a provision which was introduced by the Finance [No. 21 Act, 2004 with effect from 1st of September, 2004. Well, this provision relates to taxing any sum of money received by way of gift exceeding the sum of ` 25,000 (now ` 50,000). However, the section provides that this provision will not apply to any sum of money received from any relative. In the above case the sum of ` 5 lakh is received by the son from his father who being a relative is covered in the above exception. Hence, even when the gift is in the excess of ` 50,000, it will not be taxed as income. Thus, it is now time to so plan and arrange your affairs that you make a gift, to each of your major children, and especially those children who are still studying and do not yet have any income. More particularly for your major girl child a gift of that amount which you plan to spend at her marriage is a definitely great idea. After receiving the gift from you, your major children can invest the money in any manner they like. If they make the investment in shares or in mutual funds, then the income arising therefore would be tax-free. If required the major child can loan back the amount to the father on interest. The interest paid by the father would be allowed as a deduction from his business income if the amount taken as loan from his son is used in the business or profession. If the income of the major male child is in excess of ` 2,00,000 during the financial year 2012-2013 relevant to the assessment year 2013-2014 then investments can be so planned so as to get the benefit under Section 80C of the Income Tax Act, 1961. Deduction from their income is permissible to taxpayers to the maximum extent of ` 1 lakh in respect of stipulated investments and expenditure made by them, for example in insurance premium, PPF, etc., etc.

People who are on the verge of retiring and are going to receive a big sum of amount by way of retirement benefits should definitely consider making a gift to their major children and save the overall income tax liability of the family. The amount which has been gifted away to the children and the income arising there from becomes a separate income of the major child. The income so arising to the major child can be withdrawn and spent on household expenses or even on his /her own education.

Making a gift to your major child is a practical, simple and efficient tool of tax planning. Do remember that your major son should also apply for a separate permanent account number by submitting Form No. 49A. So why wait, start now and relax and enjoy the tax benefits as a result of new separate independent Income tax file of your major children which is just a child’s play with no hassles and no tension from the tax department.
Sec. 143(3) : Scrutiny Assessments by Income Tax Department
“Penalties” Under Income Tax Act. 1956
How is a Search Operation Conducted by Income Tax Department ?
Surveys for Checking Ostentatious Expenditure
Surveys for Enforcing Compliance with Provisions of TDS
“Summon” U/s 131 of Income Tax Act.
Investigation by Income Tax Department:
Appellate Authorities of Income Tax Department
Power to Call for Information U/s Sec. 133(6) of Income Tax Act.
Specific Surveys U/s 133A(1) of Income Tax Act.
Types Of Income Subject To TDS [Deduction Of Tax At Source]
Pre-Requisite For Claiming Income Tax Refund
Benefits of Filing Income Tax Returnsn
Section-139(9): Defective Tax Return
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How is a Search Operation Conducted by Income Tax Department ?
The provisions relating to search and seizure are contained in section 132 of the Income Tax Act, 1961.
Sec. 143(3) : Scrutiny Assessments by Income Tax Department
Scrutiny assessment refers to the examination of a return of income by giving an opportunity to the assessee to substantiate the income declared and the expenses, deductions, losses, exemptions, etc. claimed in the return with the help of evidence..
“Penalties” Under Income Tax Act. 1956
Penalties by way of monetary payments are charged under the Income Tax Act for various defaults relating to payment of taxes, maintenance of accounts, for noncompliance and non co-operation during proceedings, for evasion of tax, etc..
Income of Individuals And HUFs – As a Tax Payers Under Income Tax Act, 1961.
The individual tax payers and also the HUFs while proceeding to calculate the net taxable income in the first phase are required to arrive at the gross total income under different heads of income...
Types Of Income Subject To TDS [Deduction Of Tax At Source]
The following types of incomes are mainly subject to deduction of tax at source: (a) Salaries Section 192. (b) Interest on securities Section 193..
Pre-Requisite For Claiming Income Tax Refund
For claiming income tax refund the first prerequisite is that there should have been excess tax paid or deducted at source on the basis of return of income.
Section-139(1) : Provision for Voluntary Income Tax Return
Every person,— (a) being a company or a firm; (whether having income or loss) or (b) being a person other than a company or a firm if his total income or the total ncome of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall file a return of his income in the prescribed form.
Benefits of Filing Income Tax Returnsn
We have heard many a times that every individual whose total income exceeds the maximum exemption limit is obligated to furnish his/her Income Tax Return or ITR.
Section-139(9): Defective Tax Return
Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of 15 days from the date of intimation.
Section 139(5) : Revised Income Tax Return
If any person, having furnished a return u/s 139(1), or in pursuance of a notice issued under section 142(1), discovers any omission or any wrong statement therein, he may furnish a revised return at any time.
Section-139(4A) : Income Tax Return of Charitable and Religious Trusts
Every person in receipt of income derived from property held under trust or other legal obligation wholly or partly for charitable or religious purposes or of income being voluntary contributions referred to in section 2(24)(iia) shall.
Section-139(4) : Belated Income Tax Return
If an assessee has not furnished a return of his income within the time allowed to him under section 139(1) or within the time allowed under a notice issued under section 142(1).
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