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Find out how you can invest for family members and stay on the right side of the law at the same time

The government is keen on making benami property laws even more stringent. So, all those asset owners who fail to produce legal proof of source of earning that allows him or her to own the asset, risk it being termed benami. Here, the term property will mean not just real estate but any kind of movable or immovable, tangible or intangible assets, including jewellery, cash and investments.

The new law is likely to state that property acquired in the name of any person (other than spouse and unmarried daughter)--brother, sister, father, mother, son-risks being confiscated and could lead to jail time. All `gifts’ given to relatives to escape tax could be probed even more closely . However, no one is stopping you from saving taxes using legitimate ways. Here are seven ways to escape tax legally when investing in the name of family members.

Invest gifted money in tax-free instrument

Exhausted your 80C limit? Transfer some money to your non-working spouse or minor child and invest that sum in a tax-free instrument such as PPF or ELSS funds, tax free bonds and Ulips. The gift tax rules won’t apply to these relations, including any of your or your spouse’s lineal ascendants or de scendants. Therefore, you can transfer any amount you want. Since you are investing in a tax-free instrument, even the clubbing of income clause won’t affect your tax liability.

Deduction available in case of minor child

You can claim a deduction of up to `1,500 per child for two children in case of investments made in the name of minors. This means you can invest, say, `15,000 (or `30,000, for two kids) in a one-year FD scheme which gives a return of 10% and be exempt from tax.

There is no tax on long-term gains 

Not interested in locking your money in long term investments or fixed assets? Invest the l gift money in stocks and equity mutual funds e and hold for more than a year. There is no capital gains tax on equity assets held for g more than 12 months. In case of gold and property and debt-oriented mutual funds, the holding period is 3 years.

The clubbing is only at the first level

If earnings are reinvested, it will be treated as your relative’s income. This means the second year onwards, you’ll have no further tax liability on that money. You can use this strategy even if your spouse is earning, but falls in a lower tax bracket.

Adult children are big tax savers

The clubbing rule does not apply once your child turns 18. Since the person is treated as a separate individual for all tax purposes, you can transfer money and enjoy another `2.5 lakh exemption along with all the other deductions and benefits that other taxpayer enjoys. You can start investing if the child is turning 18 before 31 March of that financial year and benefit for the entire year.

Clubbing not applicable in case of parents

You can also invest in your parent’s name and the best part is the clubbing rules won’t be applicable here. Also, there is no gift tax on the money you give to your parents. So, make use of their a basic tax exemption limit-`2.5 lakh for up to 60 years, `3 lakh for those above 60 and `5 lakh if they are above 80. In case they are exceeding the exemption limit, help them save taxes.

There are huge tax benefits if you live with your parents and the house is registered in their name. You can pay rent to them and claim HRA benefits. Your parents on the other hand can claim 30% of the annual rent as deduction for maintenance expenses.They will be taxed for only the income above their basic tax exemption limit, which is `2.5 lakh (`3 lakh in case they are above 60 and up to `5 lakh if above 80 years). You get a bigger benefit if the house is co-owned by your parents. They can split the earning from rent and show separate tax liability.This money can be invested in options such as the Senior Citizens Saving Scheme, fiveyear bank deposits or tax saving equity MFs.You can consider buying health insurance for up to `25,000 (`30,000 if they are above 60 years) and claim deductions under 80D.

Show the monetary transaction as a loan

The clubbing provision is applicable on earnings from gifted money . However, if you show the transaction as a loan where your relative pays you a nominal interest, income from the investment will not be taxable.