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Financial Planner - Answered on Jun 24, 2024

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Asked by Anonymous - Jun 17, 2024Hindi

I want to give 30 lakh to my parents for them to open senior citizen savings scheme. The interest will be used for their monthly expenses. How to deal with the tax for this? I want to avoid paying tax on this.

Ans: When you give money to your parents, it's considered a gift. In India, gifts given to specified relatives (including parents) are not taxable in the hands of either the giver or the receiver. However, the interest income earned from the investment in the Senior Citizen Savings Scheme (SCSS) will be taxable in the hands of your parents.

Here's a detailed breakdown of how to handle the tax implications:

1. Gifting the Money:

No Tax on Gift: Suppose, if you give Rs 30 lakh to your parents, this amount is not taxable as it falls under the exempted category of gifts to specified relatives under Section 56(2)(x) of the Income Tax Act.

2. Investing in SCSS:

Senior Citizen Savings Scheme (SCSS): Your parents can invest the gifted money in the SCSS, which is designed for senior citizens and offers attractive interest rates.

• Interest Income: The interest earned on the SCSS investment will be taxable in the hands of your parents. The current interest rate on SCSS is around 7.4% per annum (this rate may vary, so check the latest rate at the time of investment).

3. Tax Implications for Parents:

• Interest Income Taxation: The interest income earned from SCSS will be added to your parents' total income and taxed according to their applicable income tax slabs.
• Section 80TTB Deduction: Senior citizens can claim a deduction of up to Rs 50,000 on interest income from deposits (including SCSS) under Section 80TTB.

4. Tax-Saving Tips:

• Splitting the Investment: If both parents are eligible senior citizens, you can split the Rs 30 lakh equally between them. Each parent can invest Rs 15 lakh in their respective SCSS accounts, potentially reducing the taxable interest income for each.
• Other Deductions: Ensure your parents claim all other eligible deductions under the Income Tax Act, such as medical expenses (Section 80D) and standard deductions.

Example Calculation:

• Investment: Rs 30 lakh (Rs 15 lakh in each parent's SCSS account).
• Annual Interest: Suppose the interest rate is 7.4%, the annual interest income will be Rs 2,22,000 (Rs 1,11,000 per parent).
• Taxable Income: After claiming the Rs 50,000 deduction under Section 80TTB, the taxable interest income for each parent will be Rs 61,000.
• Tax Payable: If your parents' total income, including this interest, is within the basic exemption limit (which is Rs 3 lakh for senior citizens and Rs 5 lakh for super senior citizens), they may not have to pay any tax. If their total income exceeds these limits, the interest income will be taxed according to their applicable tax slabs.

Conclusion:

By giving the money as a gift to your parents and having them invest in the SCSS, you avoid paying tax on the gift itself. However, the interest earned from the SCSS will be taxable in their hands. Splitting the investment between both parents and utilizing available deductions can help minimise the tax burden.

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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