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My daughter is studying in US. Can I save tax by transferring some money to her?

My daughter is 21 years old and is financially dependent on me. She has no income of her own. She is studying in USA since 2021 and thus is an NRI. She has a savings bank account in India. She also has PAN and Aadhaar. I understand NRIs cannot avail deduction under section 80C for tax savings. I would like to transfer some of my income to her savings bank account and invest in her name and through that account to save on my taxable income and tax outgo. What are the avenues available so that she has zero tax liability and I am able to reduce my tax outgo to the maximum through her? 

No. Your understanding is not correct about eligibility of Non Residents to claim deductions under Section 80 C. Yes, there are some restriction on non resident making investments in certain products eligible for section 80C but deduction under Section 80C can be claimed in respect of other eligible items. For example, a non-resident is not entitled to open a fresh PPF account as well as invest in NSC, Senior Citizen scheme and post office monthly scheme. So except these restriction, your daughter can invest in any other tax saving avenues available under Section 80 C like ELSS, ULIPs of mutual funds, payment of life insurance premium if she has a life insurance policy or invest in tax saving FD, repayment of home loan etc.

Please note that just by transferring income from your account to her saving bank account, you cannot avoid the tax on the income received by you and on which you are otherwise liable to pay tax. Yes. You can gift any sum to your daughter which will neither attract any tax liability nor any clubbing provisions. Any income which she earns on money gifted by you will be taxable in her hands in India. As a non-resident she is entitled to basic exemption limit of 2.50 lakhs and can avail deduction up to Rs. 1.50 lakh under Section 80 C, you can plan making gifts to her in such a way so as to ensure the income of up to 4 lakhs every year to her.

Please note the income which she earned in India may be subjected to deduction of tax at source even if she may not have any tax liability. Moreover, the same income may get taxed in US as she is tax resident of US. Please note that the transaction of gift from you may not be tax exempt for her in US. So please get the tax implications, of she receiving gifts from you as well as Indian income, as per US law evaluated before you actually embark on this transaction. 

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter

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