Can Your Child Provide you Relief from Tax Saving?

Written by : Knowledge Centre Team

Reviewed by : Akash

Akash

2024-08-02

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The birth of a newborn is a momentous occasion in a couple’s life. With all the joy and celebrations, also come a host of responsibilities. As you become a parent to a child, his or her well being is the foremost on your mind. So when it comes to giving your child a good education you want to provide for the best.

It is important to start saving early in order to build a corpus for your child’s education. You also need to take the rising inflation into account when choosing an investment option to ensure that your savings do not fall short of the amount required 20 years from now. Here are a few child investment plans that not only help you save tax, but also help you generate higher returns that can help you accumulate the estimated amount for your child’s future education:

Public Provident Fund(PPF): This is one of the oldest and most risk free tax saving investments. You can start by investing a minimum of ₹500 to a maximum of ₹1.5 lakh in the name of your minor child. It is a long term investment with a 15 year lock-in period. The principal invested annually qualifies for exemption as per provisions under 80C, however, it cannot exceed ₹1.5 lakh, including contributions made to accounts in your name and that of the child. Interest is compounded annually every year, is tax free and is added back to the principal until the account is active. When your child turns 18, he or she can operate the account in their name, or you can withdraw the entire amount for your child’s higher education.
Sukanya Samridhi yojana(SSY): If you have been blessed with a girl, you can open a SSY account. It is one of the child investment plans to empower girls and also comes with a higher rate of interest and sovereign guarantee, at the same allowing you to save tax. A family can open a maximum of two SSY accounts, one for each girl who should not be above 10 years of age at the time of account opening. A minimum annual contribution of ₹250 to a maximum of ₹1.5 lakh is allowed which is eligible for deduction as per Section 80C. Once the girl is 18, you can make a withdrawal of upto 50% of the account balance in the last year for her higher education. SSY has a 21 year lock-in period from the date when the account is opened and deposits need to be made for the first 15 years.
Equity linked savings scheme(ELSS): Both PPF and SSY are schemes from the government that fall in the debt category. However, if you are aiming for higher inflation beating returns over the long term, ELSS should be your best bet. These are the only tax saving investments in the mutual funds category. However, they also carry more risk. So research the funds extensively and choose funds in tune with your risk appetite to generate wealth over the long term. They come with a three year lock-in period. Once you are approaching your target, remember to shift to the safety of debt in order to prevent the erosion of the accumulated amount.
Unit Linked Investment Plan(ULIP): A ULIP is a dual benefit investment tool that not only provides a life cover but also helps your money grow by investing in the market at the same time providing tax relief. A lump sum or monthly amount is paid out to your family in your absence to meet their immediate financial needs. This ensures that your child continues with his education uninterrupted and your spouse is equipped to handle day to day needs. ULIP child investment plans allow for premium waiver upon the death of the policyholder so that investments do not stop. You can also strategically plan the payouts of the plan by factoring the key milestones in your child’s life such as when he or she completes school or college as per your needs.

These are some of the tax saving investments that you can include in your financial portfolio to meet the future needs of your child when he or she grows up. Invest 4G plan from Canara HSBC Life insurance allows you to invest in 7 funds which range from equity, to debt and even a combination of both. 4 portfolio strategies can be chosen as per your risk preference.

You can also make partial withdrawals to fund any immediate needs and opt for the life option with premium funding benefit which not only disburses a lump sum amount in the event of the insured’s death but also takes care of the payment of future premiums as well. So choose an appropriate investment plan today so that your child can live their dream even when you are not there.

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