Please note that just by transferring income from your account to the bank account of your son, you will not be able to reduce the tax which you are otherwise liable to pay on such income
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My son is 21 years old and is dependent on me financially. He is studying in Australia since 2019 and thus is an NRI (Non Resident Indian). He holds a savings bank account in India. He also has a PNA. I understand that NRIs cannot avail benefit under section 80C for tax savings. I wish to transfer part of my income to his bank account to make investments in his name and reduce my taxable income and tax outgo. What are the avenues available for him to have zero tax liability and at the same time I am also able to reduce my tax outgo to the maximum through him?
No. Your understanding about eligibility of NRI to claim deductions under Section 80 C is not fully correct. An NRI is eligible to claim full deduction under Section 80 C upto Rs. 1.50 lakh every year but there are restrictions as to the products in which an NRI can invest to claim this deduction. So an NRI is not entitled to open a PPF account as well as he cannot invest in NSC, Senior Citizen scheme and post office monthly schemes. So except for these restrictions, your son can invest in many other tax saving avenues available under Section 80 C like ELSS, ULIPs, payment of life insurance premium, tax saving FD, repayment of home loan etc.
You can gift any sum to your son which will neither attract any tax liability for any of you as relationship of father and son is covered under the category for specified relatives for making the gifts outside the scope of taxation. It will also not attract any clubbing provisions. He can save tax by availing the basic exemption of Rs. 2.50 lakhs as well as by making investments in any product like ELSS of Rs. 1.50 lakhs in a year. Please note that just by transferring income from your account to the bank account of your son, you will not be able to reduce the tax which you are otherwise liable to pay on such income. However, any income arising on money so transferred shall be included in his income and taxed in his hands.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail and @jainbalwant on Twitter.com.