Look for INSERT
for AY 2007-08
As
per Assessment Year 2006-07
QUICK LOOK
- Investing in a senior citizen's
name can result for the higher tax exemption one enjoys.
- Certain investments offers
higher return to senior citizens.
- Through gifts made to a senior
citizen, investment can be made.
- Tax-free investments can be
made in the name of any family member.
- A self-occupied house should be
bought in the name of the member in the highest tax bracket.
- A salary earner can reduce his
tax by paying rent to the family member owning the house.
There are different considerations
while planning of family investments. They are as follows:
- Choosing the right member's fund
for investments.
- Availability of the concessions on
the initial investment and the returns.
- The tax liability of such earnings.
- Taxability of sums received on
maturity.
- Capital generation needs of each
member.
- The age of the investor.
Investment made in the name of Senior
Citizens
- Higher basic exemption limit and
increased rate of return.
- Rs. 1.85 lakh is exempt from tax
(F.Y. 2005-06).
INSERT (AY
2007-08)
Rs. 1.95 lakh is exempt from
tax. |
- With investment or utilising, a
senior citizen may not pay tax up to Rs. 2.85 lakh.
- Certain investment schemes offer
higher rates of return or are open for senior citizens. Investing in
these increases the earnings of the family.
- Funds for a senior citizen can be
generated by gifts from a high net worth member. It would not suffer
tax.
- The earnings are reinvested to
increase income in the subsequent years.
Note:- A donor legally
divests the title to the property in favour of the recipient by the way
of gift, so he/she cannot have any claim to the property thereafter.
Tax-exempt Investment
It can be made in the name of any member but one should keep in mind to
make it through such member whose chance of falling in the highest tax
bracket is the least in the long run. It can be made in the name of
minor so that parents does not have to pay the tax even after clubbing.
Concessional Tax Treatment
Certain investments attract tax concessions, like short-term capital
gains on the transfer of shares through recognised stock exchanges. It
is taxed only at 10% flat. Investment on shares can be made in any
members name as it do not result in any differential tax outflaw.
Investment on Business Premises
An investment can be made in office/ business premises in the name of a
member who is not the proprietor of the business. Take an example, a
person carrying a retail business can buy a shop in the name of another
member and then take it on rent. The rent paid is tax-deductible. The
rent earned by the member of the family paying lesser or negligible tax
suffers lesser tax than the tax paid by the owner of the business.
Salary Earners and HRA
A salary earner can reduce tax liability by paying rent to a member of
his family who owns his house in which the former resides, provided the
member falls in lower tax bracket. But before practising this one must
take into consideration the place where the house is located, the local
laws on letting out property on rent, like stamp duty, registration
charges, leave and license agreements. The rent should be perfectly paid
by cheque and on regular basis through the year to prove authenticity of
the transaction.
Joint Ownership of a Residential House
In case of joint ownership where the shares are in an agreed ratio,
each co-owner's share of the income from the property will be included
in his/her total income while filing returns. While taking loans, the
co-owner can take in any ratio, irrespective of the sharing ratio.
Hence, it is beneficial for the person in higher tax bracket to borrow
more. It helps him/her to save more tax on interest deductions.
Owning House Property
A self-occupied house should always be bought by the person with
highest tax bracket. This will not fetch any return and the fall in his
investible surplus will reduce his future income and future tax
liability. Investment made in the
name of Senior Citizens
- Higher basic exemption limit and
increased rate of return.
- Rs. 1.85 lakh is exempt from tax
(F.Y. 2005-06).
- With investment or utilising, a
senior citizen may not pay tax up to Rs. 2.85 lakh.
- Certain investment schemes offer
higher rates of return or are open for senior citizens. Investing in
these increases the earnings of the family.
- Funds for a senior citizen can be
generated by gifts from a high net worth member. It would not suffer
tax.
- The earnings are reinvested to
increase income in the subsequent years.
Note:- A donor legally
divests the title to the property in favour of the recipient by the way
of gift, so he/she cannot have any claim to the property thereafter.
Tax-exempt Investment
It can be made in the name of any member but one should keep in mind to
make it through such member whose chance of falling in the highest tax
bracket is the least in the long run. It can be made in the name of
minor so that parents does not have to pay the tax even after clubbing.
Concessional Tax Treatment
Certain investments attract tax concessions, like short-term capital
gains on the transfer of shares through recognised stock exchanges. It
is taxed only at 10% flat. Investment on shares can be made in any
members name as it do not result in any differential tax outflaw.
Investment on Business Premises
An investment can be made in office/ business premises in the name of a
member who is not the proprietor of the business. Take an example, a
person carrying a retail business can buy a shop in the name of another
member and then take it on rent. The rent paid is tax-deductible. The
rent earned by the member of the family paying lesser or negligible tax
suffers lesser tax than the tax paid by the owner of the business.
Salary Earners and HRA
A salary earner can reduce tax liability by paying rent to a member of
his family who owns his house in which the former resides, provided the
member falls in lower tax bracket. But before practising this one must
take into consideration the place where the house is located, the local
laws on letting out property on rent, like stamp duty, registration
charges, leave and license agreements. The rent should be perfectly paid
by cheque and on regular basis through the year to prove authenticity of
the transaction.
Joint Ownership of a Residential House
In case of joint ownership where the shares are in an agreed ratio,
each co-owner's share of the income from the property will be included
in his/her total income while filing returns. While taking loans, the
co-owner can take in any ratio, irrespective of the sharing ratio.
Hence, it is beneficial for the person in higher tax bracket to borrow
more. It helps him/her to save more tax on interest deductions.
Owning House Property
A self-occupied house should always be bought by the person with
highest tax bracket. This will not fetch any return and the fall in his
investible surplus will reduce his future income and future tax
liability.
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