Avail of minor Tax exemption in INDIA

If a parent invests in a minor child's name, the income is clubbed with that of the parent who earns more. In some cases, a minor child may have a personal income, such as a cash prize in a competition or payments for commercials and events. However, this is rare and mostly it's the parent who invests on behalf of the child. There is a small Rs 1,500 exemption per child per year for the income earned by such investments.

You can avail of this for a maximum of two children. This means, you can safely invest Rs 15,000 in a fixed deposit in your child's name. If you have two children, that's Rs 30,000 earning tax-free income every year. Opt for the annual payout option because the cumulative option will push up the earning beyond the tax-free limit in a couple of years as the compounding effect comes into play. Tax experts feel the Rs 1,500 exemption per child is too low and should be raised, but there are others who think this should be removed. A simpler tax structure will encourage greater compliance. The original DTC had proposed the removal of nearly all exemptions and deductions, but raised the basic exemption limit and tax slabs.