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 1.5 lakh in respect of life insurance premium alongwith various other items. For life insurance premium the deductioncan be claimed even where payments are made for your children. As there are several items eligible for this deduction and the amount is restricted to Rs 1.50 lakh, for several salaried employees this amount gets exhausted with Employee Provident Fund contribution. Or even if you have home loan, this limit gets exhausted with the principal repayment and other items.
As life insurance is a must for younger people, specially if you have home loan and dependents, you can get your parents to pay your life insurance premium on your behalf, even if they are not senior citizens.
Parents can pay life insurance premium for their children, irrespective of whether the children are married or unmarried, major or minor, financially dependent on parents or not. So, you can claim tax exemption on your life insurance premium by routing the premium payment through your parents.
And your parents would be able to claim the benefit since it is unlikely that they would have avenues to save tax like school fees for children, EPF or home loan repayment. By paying premium for your for your life insurance they can meet their tax saving limits. So it is win-win situation for both. The amount in respect of which you are not able claim the tax benefit will come in handy for your parents.
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 up to Rs, 5000/- for regular health check up for your family as well as parents.
With advanced age it becomes almost impossible to get a health insurance. Besides, routine medical expenses also increase as age increases. In majority of the cases, incomes of senior citizen parents would not be sufficient enough absorb a high a deduction of Rs 50,000. 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 parents arealive, one parent can claim this deduction in his/her income and you can claim it for the other parent. 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.
Benefits in respect of interest on bank deposits
From the current year the benefit for interest from all deposits, whether fixed, recurring or saving account, qualifies for deduction up to Rs 50,0000. 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 up to Rs 50,000 for which you would otherwise have paid tax.
The writer is a tax and investment expert
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