My daughter is 21 years old and financially dependent on me. He has no income of his own. She is studying in USA since 2021 and thus is an NRI. He has a savings bank account in India. He also has PAN and Aadhaar. I understand that NRIs cannot avail deduction under section 80C for tax savings. I want to transfer some part of my income to his savings bank account and invest in his name and through that account to save my taxable income and tax expense. What are the avenues available so that there is no tax liability on it and through that I can minimize my tax expenditure to the maximum?
No. Your understanding of the eligibility of non-resident to claim deduction under section 80C is incorrect. Yes, there are certain restrictions on non-resident investing in certain products eligible for section 80C but deduction under section 80C can be claimed in respect of others. eligible item. For example, a non-resident is not entitled to open a new PPF account as well as invest in NSC, Senior Citizen Scheme and Post Office Monthly Scheme. So barring these restrictions, your daughter can avail any other tax saving avenues available under section 80C like ELSS, ULIPs of mutual funds, life insurance premium paid if she has a life insurance policy or investment in tax saving FDs, repayment of house can invest in. loan etc.
Please note that by simply transferring income from your account to his savings bank account, you cannot avoid tax on the income received by you and on which you are otherwise liable to pay tax. Yes. You can gift any amount to your daughter which will neither attract any tax liability nor any clubbing provision. Any income that she earns from money gifted by you will be taxable in her hands in India. As a non-resident she is entitled to a basic exemption limit of 2.50 lakh and can avail deduction of up to Rs. 1.50 lacs under section 80C, you can plan to gift him in such a way as to ensure his income of up to 4 lacs per year.
Please note that the income earned by him in India can be deducted at source even if he does not have any tax liability. In addition, the same income may be taxed in the US because she is a US tax resident. Please note that your gift transactions may not be tax exempt in the US. So please get the tax implications on Indian income as he receives gifts from you, as assessed by US law before initiating this transaction.
Balwant Jain is a tax and investment specialist and can be contacted on Twitter at jainbalwant@gmail.com and @jainbalwant.