Open a bank account
If you open a savings bank account for your child, interest earnings up to Rs 1,500 per child for up to two children, per year, will be exempt from tax under Article 10 (32 ). This means you can save up to Rs 3,000 in tax if you have two children.
Invest for your child
If you have not exhausted the Section 80C limit of Rs 1.5 lakh per annum with your investments, you can invest for your child to enjoy the full exemption. For example, you can invest in PPF, Ulips, mutual funds and some traditional plans, but remember that income from these will be added to your income and taxed at the applicable rate. This can be avoided by investing in instruments that do not tax the income, such as PPF or equity mutual funds, where the profit is not taxed if it is less than Rs 1 lakh per annum.
Invest in adult child names
If your child is an adult, ie over the age of 18, the income they derive from their investments will be taxable in their hands and will not be clubbed together with your income to be taxed at the applicable rates. So, if his net income and his income are below the taxable limit, you can save tax on his investment income if you offer him money, which he can invest.
Pay tuition fees
If you have children in school and you have not exhausted the Section 80C deduction limit, you can consider tuition from the overall tuition you pay for your children. Up to Rs 1.5 lakh is exempt from tax under Section 80C for school fees paid for up to two children per year. If you are employed, you can also apply for an exemption of Rs 100 per month, per child, up to two children, as education allowance for children, and Rs 300 per month, per child, as accommodation cost allowance under Section 10. This means that in addition to Rs 1.5 lakh per year, you can also save Rs 2,400 and Rs 7,200 per year if you have two children.
Take out a student loan
If you take out a loan for your child’s college education, the portion of the interest you pay on the loan will be deductible under Section 80E for eight years from the start of repayment.
Take out health insurance
If you take out health insurance for your children, the premium paid up to Rs 25,000 per year is exempt from tax under Section 80D, which also includes expenses for preventive health examinations up to Rs 5,000 .
Disabled Child Deduction
If you have a child who is disabled or has a specific illness, you may be eligible for a deduction under section 80DDB for medical expenses you incur. You can claim a deduction of Rs 40,000 or actual expenses, whichever is lower, in case of illness. For 40-80% disability, you can claim up to Rs 75,000, and beyond 80%, the deduction available is Rs 1.25 lakh.