A child above the age of 18 years can open a demat account and stocks trading account in his own name. On this basis, you can start your trading. Long term capital gains up to Rs 1 lakh every year on this account are tax free.
Not only your senior parents, your children can also help save tax. You just have to know its method and invest money in their name. If the child is a minor and his age is less than 18 years, then the investment in his name will be tax free. The rule is that the investment made in the name of the children gets clubbed with the earnings of the parents and accordingly becomes taxable.
In this, it has to be noted that till the child does not become an adult, then only this facility of tax is available. When the child turns 18, his earnings cannot be clubbed with the parents. After 18 years of tax, that child will be seen as a separate person. Just as the rule of tax exemption or tax liability applies to other adults, the same rule will apply to that child as well. After 18 years, if that child starts earning any income or starts earning from investments in his name, then he will be liable to tax.
When the child is over 18 years old
A child above the age of 18 years or an adult will be legally considered an adult and in this case he will be free to invest in stocks or mutual funds on his own. Children below the age of 18 years cannot invest in stocks or mutual funds on their own, but their parents can invest in the name of the children. A child above the age of 18 years can open a demat account and stocks trading account in his own name. On this basis, you can start your trading. Long term capital gains up to Rs 1 lakh every year on this account are tax free. Short term capital gains up to Rs 2.5 lakh in a year will be considered tax free.
Benefits of investing in the name of children
There are many other benefits of investing in the name of children. If you deposit money in Public Provident Fund PPF in the name of a minor child, then his money will be clubbed with the income of the parents. In such a situation, the limit of Rs 1.5 lakh in PPF will be exceeded every year. There may be losses, but as soon as the child is more than 18 years, his investment in PPF will be considered separate from the parents. In this situation, now you can also deposit money in the child’s PPF account and save tax on it. This will also increase your investment amount and in the end you will also get the benefit of savings. Now every year up to 1.5 lakh can be deposited separately in the child’s account.
Be careful gifting in the name of the child
If you gift money to your adult child or invest it in his name, then it will be easy to save tax on it. But it has to be worked with caution. If you have not told the child how to spend, do not tell the ways of saving and the child becomes irresponsible, then there is no point in saving. All the accumulated capital can be lost in one stroke. Your deposited money can be spent in work without any need. Later the name may be changed in the will, but if you do not do this and the property which has been gifted in the name of the child, it will not come back to you. Lest you have to lose 100% of your deposits to save 20-30% money.
