How to Save Taxes from your Child Investment Plans

Children are the best things ever happen to parents. Not only can they give happiness while they grow but they can also help you in getting handful of returns getting axed by tax deduction via child investments. In today's world of ever increasing expenses, spending on your children results in a substantial outflow from your pocket. But while caring for your child’s future you can build your tax savings plan today on many expenses and investments made in your child's name. This includes a wide variety of expense heads and investments. Most of these investments fall under the ambit of Section 80 C within the Rs 1.5 lakh limit. Here are a few such tips that will help you reduce your tax outflow:

Education loan:

The cost of education for child is ever escalating and needs a good planning for it. Most of you may opt to take a loan to fund your child's higher studies. While these results in a repayment burden, you can gain partially, as the interest portion on education loan is fully tax deductible under Section 80E of the Income Tax Act.

Tuition fees:

Tuition fees paid by the parent to fund his child's education in any school, university, college or any other education institution within India comes exempted from tax under Section 80C. The amount of deduction is restricted to two dependent children and should pertain only to actual tuition fees paid.

Health insurance:

A child health insurance policy can be utilized for your tax savings plans, you can claim the premium paid as a deduction from your income, up to a Rs. 15,000 in a year.

Disabilities and certain ailments:

The Income Tax Act relaxes parent from added burden and helps in creating their tax savings plan from his or her income on an amount incurred towards treatment of specific disabilities and illnesses of his or her child under two sections. Section 80DD of the Act states that expenses incurred towards medical treatment of dependent children suffering from a disability are eligible for deduction with a limit of Rs. 50,000 for a normal disability (impairment of at least 40 per cent) and Rs 1 lakh for severe disability (impairment of 80 per cent or above). Section 80DDB of the Act allows expenses incurred towards treatment of specified illnesses for children to be deducted from income, up to Rs. 40,000.

Minor child's income:

When you make investments in your child's name, the earnings from these investments will be clubbed with your income. You can claim up to Rs 1,500 as a deduction on this income. This is available for up to two children.

Trust Formation:

You can set up a trust in your minor child's name. Such earnings are tax redemptive and can be used for your tax savings plan. You will need to transfer the money to the trust, so that the money is not claimed by you. When you make investments through trust, the income made through these investments will not be clubbed with your income. Even though the trust has to pay tax on this income, the total tax liability will be lesser compared to the income clubbed with your earnings.