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Ramalingam Kalirajan |10246 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on May 29, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - May 29, 2024Hindi

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Is SIP in minors name for higher education ,would be beneficial in tax point of view,? when minor becomes major who would be liable to pay taxes Major or parents???

Ans: Certainly, let's delve into the tax implications of investing in SIPs in a minor's name and how it affects taxation when the minor becomes a major.

Understanding SIP in Minor's Name
Investing in SIPs in a minor's name for their higher education can have tax implications for both the minor and the parents.

Tax Benefits of SIP in Minor's Name
Investing in SIPs in a minor's name can offer tax benefits under certain circumstances.

Tax-Free Income: Income earned from investments made in the minor's name is clubbed with the parent's income and taxed accordingly.

Lower Tax Liability: By distributing income among family members, overall tax liability can be reduced.

Taxation When Minor Becomes Major
When the minor reaches the age of majority, the tax implications change.

Tax Liability Shifts: Upon turning major, the minor becomes liable for taxes on income earned from investments made in their name.

Clubbing Provisions: Income earned prior to turning major may still be clubbed with the parent's income for taxation.

Tax Planning Strategies
To optimise tax implications, consider the following strategies:

Utilising Tax Exemptions: Make use of tax exemptions and deductions available for education expenses.

Gradual Transfer of Investments: Consider gradually transferring investments to the minor's name to manage tax implications.

Decision Making
Deciding whether to invest in SIPs in a minor's name for higher education depends on various factors.

Risk Appetite: Assess the risk appetite and investment horizon to determine suitable investment avenues.

Tax Planning Goals: Align investment decisions with long-term tax planning goals and financial objectives.

Considerations for Tax Planning
When making investment decisions for a minor's higher education, consider the following tax planning aspects:

Long-Term Goals: Plan investments keeping in mind long-term financial goals and objectives.

Legal Implications: Understand legal provisions and tax regulations related to investments in a minor's name.

Conclusion
Investing in SIPs in a minor's name for higher education can offer tax benefits and help in long-term financial planning. However, it's essential to consider the tax implications when the minor becomes a major. Consulting with a Certified Financial Planner can provide personalised guidance and help in making informed investment decisions aligned with your tax planning goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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.