A taxpayer can save tax in many ways. Parents can also invest in the name of their children to save tax. Investing in Public Provident Fund, Sukanya Samriddhi Yojna, life insurance and some mutual funds can not only save you tax, but also accumulate a huge corpus in the future.
PPF (Public Provident Fund)
While investing in PPF gives tax exemption, the money invested in it is also safe. Parents can open a PPF account in the name of the child. You can invest Rs 1.5 lakh in PPF in a financial year. At present, the government is paying 7.1 percent interest on PPF. Parents can also open PPF account of their minor child. This account remains in the custody of the parents till the child turns 18. The point to be noted in this is that if the guardian of the child already has a PPF account and he also opens a PPF account in the name of the child. However, they can invest only Rs 1.5 lakh in a financial year in both the accounts.
Either of the parents can open a PPF account in the name of the child and get tax exemption under section 80. Passport size photograph, age proof and parent’s PAN card are required to open an account. When the child turns 18, the name of the guardian is removed from the PPF account. An adult child can then invest in it himself.
Sukanya Samriddhi Yojana (SSY)
By opening a Sukanya Samriddhi Yojana (SSY) account in the name of the girl child, the guardian can also get tax exemption on investments up to Rs 1.5 lakh in a financial year under Section 80C of the Income Tax Act. At present, the government is giving interest at the rate of 7.6 percent in Sukanya Samriddhi Yojana. Parents can open an account in Sukanya Samriddhi Yojana before their child turns 10. The amount can be withdrawn from this account after the girl child turns 18 or after passing class 10th. This account can be closed after 21 years of opening the account or after the marriage of the girl child.