Another common way to avoid tax is by investing in the name of a non-working spouse or minor children. Money gifted to a spouse or a minor child does not attract tax. But if that money is invested, the income it generates is clubbed with the income of the giver and taxed accordingly. If a husband has invested in fixed deposits in the name of his wife or minor child, the interest will be taxed as his income. In case of children, there is a small exemption of `1,500 per year per child for a maximum of two children.
However, the clubbing happens only at the first level of income. If the amount earned as interest is reinvested and earns an income, it will be treated as the income of the recipient, not of the giver. The income from the reinvested income does not attract the clubbing provision.
Here's how you can make this rule work for you. Gift money to your nonworking spouse and then invest it in any tax-free investment option. The earning will be clubbed with your income, but since it is taxfree, it won't push up your tax liability. Your spouse can then reinvest that money. The income from the reinvested income will not be clubbed.
Top 10 Tax Saver Mutual Funds for 2017 - 2018
Best 10 ELSS Mutual Funds to Invest in India for 2017
1. DSP BlackRock Tax Saver Fund
2. Tata India Tax Savings Fund
3. Birla Sun Life Tax Relief 96
4. Sundaram Diversified Equity Fund
5. ICICI Prudential Long Term Equity Fund
6. Invesco India Tax Plan
7. Franklin India TaxShield
8. Reliance Tax Saver (ELSS) Fund
9. BNP Paribas Long Term Equity Fund
10. Axis Tax Saver Fund
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