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Jan 22, 2013, 04.30 PM IST | Source: CNBC-TV18

Senior citizen parents can help save income tax

In an interview to CNBC-TV18, Subash Lakhotia, Tax & Investment Consultant shared his reading and outlook on tax exemption limits for senior citizens.

In an interview to CNBC-TV18, Subash Lakhotia, Tax & Investment Consultant shared his reading and outlook on tax exemption limits for senior citizens.

Talking on the subject, he says since the basic income tax exemption for a 60-year plus and 80-year plus senior citizen is Rs 2.5 lakh and Rs 5 lakh respectively, it is a good idea for the tax payer to give away money to his/her parents and then parents make investments in their own name.

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Furthermore, the parent can make a registered 'will' wherein, in case of the parent's demise, the money goes to the rightful person.

Below is the edited transcript of his interview on CNBC-TV18

Q: Senior citizens enjoy a higher basic tax exemption limit along with a higher rate of returns on savings. Would it make sense for big family investments to be made in the senior citizens' name? I am referring to investments which are over and above the purview of 80C?

A: Yes, definitely. The basic income tax exemption limit for the senior citizens who are 60 plus is Rs 2,50,000 and those who are super senior citizens, who are 80 plus the basic income tax exemption becomes Rs 500,000. In this context it is definitely a good idea that taxpayer can give away money to his or her parents and then the investment is made by the parents, maybe in bank fixed deposit or other instruments because the bank FDR also gives a higher rate of yield especially to the senior citizens.

Q: What if the heirs start fighting for it afterwards?

A: This can be solved by preparing and registering a 'will' in which after the demise of the senior citizen/parent, the money can go to the person whomever he desires.

Caller Q: I am a professional who owns a property which is rented out. The property is in joint name of my wife and me. It is a freehold property with no loans. Can gifting this property to my wife reduce my tax liability?

A: You will not be able to save income tax. The fact it appears is that although the property partially is in your name and in the name of your wife, the payment has been made by you. Now, if you plan to give away this property to your wife, then in the first place you will be required to spend money on stamp duty.

Secondly, keeping in view the provisions of Section 64 of the Income Tax Law, the income now arising to your wife will be clubbed to your income because it is an direct or indirect transfer to the spouse.

Hence I suggest you not to make any gift of the property brought by your funds to your wife. Please do not do it.

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