Income tax provisions can be legitimately used to reduce the tax liability with the help of your parents. Let us discuss as to how it can be done.
Payment of life insurance premium under Section 80 C
Section 80 C provides for deduction of upto Rs. 1.50 lakhs in respect of life insurance premium along with various other items. For Life insurance premium the deduction can be claimed even where the payments are made for your children. As the items eligible for this deduction are so many and the amount is restricted to Rs. 1.50 lakhs only it happens in most of the cases of salaried employee who have taken the home loans that Rs. 1.50 lakh gets exhausted by contribution to provident fund and repayment of home loan. In most of the cases the amount of home loan repayment itself overflows the eligible amount as buying a house at young has become a norm and as it is difficult to buy a house without home loan. As life insurance is a must for younger people specially when you have home loans and people financially dependent on you, the amount of life insurance can be paid by your parents whether senior citizen or not.
So your parents can pay your life insurance premium for any of their whether married or not and whether major or minor or whether financially dependent on the parents or not. This strategy will help you claim the amount of life insurance premium on your life when it was anyway overflowing the eligible limit. Since most our parents would be senior citizen who do not have enough avenues like school fee for children, provident fund, home loan repayment, life insurance premium payment of your life insurance premium by them will help them in filling up the gap. So it is win win situation for both. The amount in respect of which you are not able claim the benefit will come handy to your parents to fill in the gap. This strategy can also be used in case your parents’ slab rate is higher than your slab rate and your parents have space available to claim this.
Payment of Medical Insurance premium under Section 80 D
Under Section 80D for health insurance premium for your family upto Rs. 25,000/-per year, you can also claim another Rs. 25,000 for your parents. In case your parents are senior citizen, this additional claim goes upto Rs. 50,000/-. Within these two overall limits you can claim upto Rs, 5000/- for regular health check up for your family as well as parents. In case parents do not have health insurance policy, you can claim the same amount for regular medical expenses. With advanced age it becomes almost impossible to get a health insurance and added to it are the increased regular medication and routine checking up expenses. So it comes handy for you. In majority cases income of senior citizen parents would not be sufficient enough absorb a high a deduction of fifty thousand rupees, you can claim it to you to reduce your tax liability. It is not necessary that that your parents should be financially dependent on you for claiming this benefit. Moreover in case both the parents are alive, one parent can claim this deduction in his/her income and for other parent it can be claimed by you. As per my understanding of Section 80 D there are no restrictions on you and your parents both claiming this deduction as long as the amount has been paid separately by both of you. This will help them whose parents are severally ill and the regular medical expenses are huge.
Benefits in respect of interest on bank deposits
From current year the benefit for interest from all deposits whether fixed, recurring or saving account qualifies for deduction upto fifty thousand rupees. So in case your senior citizen parents do not have sufficient income of their own, you can gift money to your parents to avail the this benefit. The gift does not have any tax implications for you or your parents as gifts received from children are fully exempt under Section 56(2). The interest on fixed deposits by your parents will get deduction upto fifty thousand rupees for which you would otherwise have paid tax. This can also ensure you in ensuring the asset allocation in different asset classes.
I am sure this discussion will help you reduce your tax liability legitimately.
The Autor is a tax and investment expert and can be reached on email@example.com and @jainbalwant on twitter