r2i forum

Hi,
A couple of my FDs (total around 9 lakhs) put in my parent's name are maturing this week. Parents do not want to continue it in their name, so as to avoid tax hassles etc.
I have a daughter 8 years old.
Both me and wife have income and FDs under our name, so opening FDs in our name wouldn't help on the tax front.
Not interested in putting all the money in the stock market. A decent 9-10% return is enough.

Any other ideas?

For example:
- FD under the kid's name? Does she need to file tax then? Will she be fine if her income (from FD interest) is less than some limit?
- Gift - can my parents or in-laws gift the money to my daughter, and can I open an FD under her name? What are the tax things to consider (for the gift and the new FD)? If not, can we gift our daughter?
- Trust - can I create a trust of some kind, for a long term purpose - could be the kid's education/marriage/endowment etc.
- What are the other avenues for putting this money (other than stock market, buying land or flat)?

Thanks a lot.

A child's income will be clubbed with the parent's for tax purposes. Your parents can gift the money to your kid with no tax consequences (AFAIK) but the income she earns on it will be taxable toyou.

A gift from your father to your child will not be clubbed with your income. No gift tax.

She will be ok if the income is less than the limit (180K or 190K? currently).
Adults I know can file some form to get tax free intt. Probably, parents are allowed to file the form on kids behalf. Check with the bank manager.

Gift from Grandfather is exempted from Gift taxes.

Kids with passive income can't file tax return on their own. Passive income up to Rs.1500 is deductible per kid. But this has to be included in either mother or father's tax return.

If tax is the problem, invest the money in kids name or in your name in liquid/bond funds with growth option. While you can expect better than FD return on after-tax basis, you are not liable for taxes until you withdraw the money.

If you can hold the funds for 1 year, you pay only 10% taxes.

It is not sensible to avoid equities if the investment is meant for long term. The easiest way to become poorer or stay as slave for ever to your pay check is by avoiding equities. If you don't like it, it is your problem, it is not the market problem. [ Last time when I spoke to Mr.Market, he said he has no plans to change. ] You will not be rewarded for your taste. It is wiser to change the taste and adopt. First one must learn the meaning of real return, next you must understand you really don't have two choices - that is whether to invest in market or not. You can force yourself to choose the second one and pay hefty penalty by working for ever.

Hi,
I now realize I sounded as if I'm against equities.
I do have around 20% in it. Been a fan/follower of r2i and RRK since 2003, tried implementing the AAP and index funds route (US and india) and holding on to it till now.
And I do want to retire sooner rather than later!!!

But some basic questions still remain:
In the indian context, i've always got around 8-9% or more after tax (by putting in company FDs, Post office schemes etc. in parent's name who don't pay any tax). Nowadays, the returns are even more (say 13% CAGR for Manappuram Bond, for 5 yrs, 12% for Muthoot for 6 yrs) and even if I pay tax on it, it's still a decent 10% return.
Now, I haven't seen my total equity portfolio growing any more than that over the last 8 years (in US especially).
Being a hands-off passive investor, will equities make sense for me, or do I just worry about searching for a good FD every 3 years or so?
My retirement accounts in US is even worse off (since they are predominantly in bond MFs), since their return is probably less than 5%, whereas I could've made double that if it were in rupees.
Unless I re-balance very frequently, or become an active investor going after the latest active funds, will I still be better off with equities?
Another point of confusion is about how our returns should beat inflation etc. How does it help when my US assets beat US inflation, but overall my US assets are still not growing as fast as my indian assest?


In a nutshell, I'm looking for growing my assets without taking too much risk, and also minimising the tax i pay in total to government. Wanted to ensure I've not overlooked any such option (including investing under kid's name, trusts etc.).


dbs,
Are you suggesting I could, for example, open a 10 lakh FD in my kid's name, and since the interest will be only around 1 lakh per annum, no tax needs to be paid?
And since it's only passive income, the kid doesn't have to file taxes?



thanks again to all.

inindia;389496dbs,
Are you suggesting I could, for example, open a 10 lakh FD in my kid's name, and since the interest will be only around 1 lakh per annum, no tax needs to be paid?
And since it's only passive income, the kid doesn't have to file taxes?

If you open a FD and the interest income is more than 10K (or 15K?), the bank will deduct TDS, unless a tax exemption certificate is filed with the bank. (does it require a PAN?) Adults can certainly file the certificate for non-deduction of TDS. As suggested earlier, check with your bank manager whether you can file the certificate on your child's behalf. Otherwise, a return will need to be filed to claim a refund.

As per India's IT law, minor's income will be clubbed with Father's (in this case) and taxed. The original gift is not taxed - income from it is.

http://indiantaxguide.wordpress.com/2008/10/01/clubbing-of-income/

blrblr;390102As per India's IT law, minor's income will be clubbed with Father's (in this case) and taxed. The original gift is not taxed - income from it is.

http://indiantaxguide.wordpress.com/2008/10/01/clubbing-of-income/

That is correct.
To the OP. How about starting an HUF; that is in case you are a Hindu.