Section I: Income Tax and Your Career

• Ques: How to plan for child's future (education, marriage, setup of business)
• Ans: Key points:
  • There are number of investment options keeping in view the security and timely payments for different requirements of children. We need regular funds for child's education, whereas for their marriage and business lump sum amount is required. One must choose the investment option keeping in view the tax benefits to parents.
  • First option is PPF in child's name because it is safe and you get section 80C deduction from your income. The yield is also tax free which is beneficial for parents as child's income is clubbed with income of parent. Loan is also available after 3rd year for emergencies (such as educational requirements). It is good for tax free wealth in the hands of children when they attain 18 yrs of age. On maturity, PPF funds can be used for marriage or business. There is lot of flexibility in investment timing and amount as per availability of funds. You can deposit up to Rs. 70,000 annually any time during the year.
  • Second option is ULIP (Unit Linked Insurance Plan). Key points of ULIP are:
    • You can ensure your child's future (whether you are there or not) by taking ULIP.
    • Premium waiver benefit of ULIP ensures that all future premiums till age of 25 yrs of your child would be waived off in case of death.
    • The child will get the funds as per original plan even when you are not there for child's graduation, post graduation, marriage, or to start a business.
    • Premium waiver is also available in case of permanent disability of parent.
    • Child is assured of monthly income of 1% of the sum assured in case of parent's death or disability.
    • The parent gets section 80C tax deduction on premium paid (up to Rs. 1 lakh) and the funds will be tax-free in the hands of child.
    • Payment can be made monthly, quarterly or annually. The regular investment makes you disciplined and ensures big amount at maturity. It reduces the risk of investing in the share market. The return on investments is tax free and average return is highest amongst all tax saving options. ULIP can help in planning education, marriage and business simultaneously.
    • All the ULIPS are being managed by professionals and controlled by IRDA.
  • Third option is zero coupon bond (ZCB). This is the one of the newest investment options available. ZCB is a bond issued by infrastructure capital company/fund or PSU and is notified by Central Govt. These bonds typically have a maturity period of 15 years and no income is received/accrued before the maturity period. You will receive a fixed amount on maturity. ZCB is different from NSC because no interest income has to be reported every year from ZCBs.
  • Fourth option is gold which helps in beating the inflation. In case of emergencies, gold can be pledged or sold to raise funds.
  • Fifth option is house property. It not only fulfils the basic necessity of dwelling, but also has several tax benefits if you purchase house through home loan. A house is an asset that can pass on from one generation to another and gives sense of belongingness to the children. You should draft a will to ensure a smooth transfer of house property to the right heirs.