Grandparent of NRI daughter: Paying US university fees & gifting money - How to avoid tax?

Ans: Going pointwise...

1. Yes, you are right.

In case Aadhar or PAN is missing, the TCS would be 10 per cent.

I would like to add that it is only Tax Collected At Source and it is not tax in itself.

You can set off this TCS for your tax liability from your other sources of income.

2. Yes, this is right. It can go up to 5 per cent, if PAN is not provided.

3. Yes, TCS is applicable at a PAN level. So, you can transfer up to Rs 7 lakhs each without TCS being applicable.

 

Ans: TCS for educational purposes is 0.5% (if funded through an educational loan from a financial institution) or 5% (without loan) of the amount exceeding Rs 7Lakh.

Ans: Maternal uncle - Mama; is in the definition of Relative as per Income Tax Act. Any amount received from relative is not an Income in the hands of recipient.

Ans: As per Income tax provisions, if father transfer funds to son as gift; it will not be treated as Income and it is advisable to execute gift deed for the same. Further, for creation of FD in the name of father, payment is required to be done from bank account of father.

With reference to amount received as legal hair, son is required to pay tax on Interest income accrued after the date of death.

Ans: Your plan to invest for your daughter’s future needs is thoughtful and strategic. Investing in mutual funds can provide growth and liquidity for marriage or other expenses. Below are insights addressing your concerns.

Can You Start a Mutual Fund in Your Daughter’s Name?
1. Eligibility of Investment
You can start a mutual fund in her name if she has a Resident Indian (RI) status.
As your daughter is studying in Canada, she likely qualifies as a Non-Resident Indian (NRI).
2. NRI Mutual Fund Investments
NRIs can invest in Indian mutual funds.
Investments should be made through her NRE or NRO account, not your bank account.
3. Joint Account Option
If she holds an NRE/NRO account, you can invest jointly.
She should be the primary holder, with you as the secondary holder.
Can You Transfer Money from Your Account?
1. Direct Transfer Limitations
Transferring directly from your account to her mutual fund investments may create compliance issues.
Regulatory norms require NRIs to use their accounts for investments.
2. Gift Option
You can gift money to her NRE/NRO account.
Gifts from parents to children are exempt from income tax in India.
3. Investment Process for NRIs
NRIs can invest in mutual funds using their NRE/NRO accounts.
Money invested through these accounts is subject to FEMA regulations.
Advantages of Mutual Fund Investments for Future Expenses
1. Growth Potential
Mutual funds offer inflation-beating returns over the long term.
They are ideal for goals like marriage or significant future expenses.
2. Flexibility in Contributions
You can choose between SIPs and lump-sum investments.
SIPs provide discipline, while lump sums maximise market opportunities.
3. Liquidity
Mutual funds are liquid and can be redeemed when needed.
Tax Implications for Your Daughter
1. Capital Gains Tax
If she is an NRI, capital gains from Indian mutual funds are taxable.
Equity mutual funds: LTCG above Rs. 1.25 lakh is taxed at 12.5%.
Short-term capital gains: Taxed at 20%.
2. Tax Deducted at Source (TDS)
NRIs face TDS on mutual fund redemptions.
This TDS can be adjusted while filing tax returns.
Steps to Start the Investment
1. Open an NRE/NRO Account for Her
Ensure she has an NRE or NRO account to invest as an NRI.
Use this account to fund the investments.
2. Choose Suitable Mutual Funds
Diversify across equity, balanced, and debt funds for stable growth.
Consult a Certified Financial Planner to align funds with goals.
3. Regular Review
Review the portfolio annually to ensure it meets her goals.
Adjust the strategy based on market trends and her needs.
Final Insights
Investing in mutual funds for your daughter’s future is a thoughtful step. Ensure compliance with NRI investment norms for a hassle-free experience. Gifting funds to her account is a tax-efficient way to proceed. Seek professional guidance for fund selection and compliance to achieve your goals smoothly.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment