What is a children's mutual fund? How does it work?
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Economic Times
5 days ago
- Economic Times
What is a children's mutual fund? How does it work?
1.A children's mutual fund is an investment option that specifically caters to children and their financial goals like higher education, college tuition or wedding expenses.2. Children's funds typically have a lock-in period, restricting withdrawals for a certain period, encouraging long-term include a mix of equity and debt, and investors can choose higher debt or higher equity depending on the risk profile and investment horizon 4.T investment is done in the name of the child and is typically made by a parent or guardian for a funds offer deductions under Section 80C, and long-term capital gains (LTCG) may be tax-free up to a on this page is courtesy Centre for Investment Education and Learning (CIEL).Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Time of India
5 days ago
- Time of India
What is a children's mutual fund? How does it work?
Academy Empower your mind, elevate your skills 1.A children's mutual fund is an investment option that specifically caters to children and their financial goals like higher education, college tuition or wedding expenses.2. Children's funds typically have a lock-in period, restricting withdrawals for a certain period, encouraging long-term include a mix of equity and debt, and investors can choose higher debt or higher equity depending on the risk profile and investment horizon 4.T investment is done in the name of the child and is typically made by a parent or guardian for a funds offer deductions under Section 80C, and long-term capital gains (LTCG) may be tax-free up to a on this page is courtesy Centre for Investment Education and Learning (CIEL).Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Economic Times
28-07-2025
- Economic Times
Save tax in new tax regime: Here are 6 smart ways
Getty Images While the new regime has fewer levers, there are still legitimate strategies available to reduce tax liability. When Budget 2025 increased the income tax rebate limit to Rs.12 lakh under the new tax regime, it gave a big relief to taxpayers. For a large section of the salaried class, the new structure now offers greater benefits than the old one, not just in terms of lower taxes, but also reduced compliance. With fewer deductions to claim, filing becomes simpler. But with less paperwork comes less deductions. Popular deductions available under the old regime, such as Section 80C for investments, 80D for health insurance premiums, and House Rent Allowance (HRA) for rent paid, are not applicable under the new regime. This has led many to believe that tax planning has become obsolete. That's not true. While the new regime has fewer levers, there are still legitimate strategies available to reduce tax liability. The key lies in identifying and using them. Abhishek Kumar Pathak, a management consultant, works at a Delhibased startup and pays significantly lower taxes under the new regime compared to the old one. Yet, he's overlooking a key tax-saving opportunity that could further reduce his outgo. Pathak is not investing in the National Pension System (NPS) because he believes it locks up his money for too long. However, NPS remains a highly effective tax-saving tool under the new regime. Contributions through employer up to 14% of basic salary are exempt under Section 80CCD(2), yet many employees don't fully leverage this benefit. Primarily designed for retirement, NPS is a strong, long-term wealth creation long-term financial goals include retirement and his future child's education. Though unmarried, he believes in starting early and invests regularly through monthly SIPs. However, the gains from these investments will be fully taxable at the time of redemption. A smarter strategy would be to shift the portion of his SIP meant for retirement (up to 14% of his basic salary) to the NPS. Doing so will not only reduce his taxable income but also provide a tax-efficient exit. As per Section 10(12A) of the Income Tax Act, 60% of the NPS corpus withdrawn at the age of 60 is tax-free. This makes NPS a compelling choice for retirement planning under the new tax it's important to remember that the annuity purchased at retirement from the NPS corpus is not tax-free. Still, NPS - E (Equity) delivers competitive returns along with attractive tax benefits. It also encourages disciplined investing, a key factor in retirement need not worry about NPS's limited liquidity, as it is meant for long-term retirement planning. For unexpected expenses, a dedicated emergency fund is a more practical solution.'To maximise tax savings through NPS, keep your basic salary as high as possible, so that your employer's 14% contribution also stays on the higher side,' advises Sudhir Kaushik, Founder, Increase your EPF contribution It's common knowledge that an employer's contribution to both the Employees' Provident Fund (EPF) and the NPS forms part of your Cost to Company (CTC). However, when it comes to EPF, some employees opt for Rs.1,800 monthly contribution— 12% of the capped salary of Rs.15,000— without realising this is just the minimum and not a fixed you can choose to contribute more, up to 12% of your actual basic salary, in case it exceeds the Rs.15,000 threshold, to the EPF. You can ask your employer to restructure your salary in a way that you contribute more. Nitesh Buddhadev, a chartered accountant and founder of Nimit Consultancy, explains that the employer's contribution remains tax-free, even under the new regime. Since this is part of your CTC, a higher contribution (matched by your share) may reduce take-home pay but boosts your EPF savings. 'Opting for the full 12% makes much more sense,' says Buddhadev. 'It not only keeps the employer's tax-free contribution intact but also helps build a larger retirement corpus over time.' Aarti Raote, Partner at Deloitte India, agrees: 'Though this benefit exists under the old tax regime, it remains a valuable tax-saving tool for salaried individuals even under the new regime if they opt for a higher PF contribution.' Check with your employer if they provide this option. However, investing in any asset purely for tax benefits is not the smartest move. Begin by evaluating whether increasing your EPF contribution actually aligns with your retirement goals. Abhishek KumarPathak, 30Management consultant, Delhi INCOME Rs.30 lakh;Rs.10 lakh basic RIGHT MOVES Invests Rs.28,000 in monthly SIPs under his father's name. Scope for improvement: Start investing in NPS and save Rs.30,000 further in monthly SIPs in equity funds. PAYS TAX Rs.4.7 lakhIf you have a low-risk appetite and already prefer fixed income options like FDs or savings accounts, then boosting EPF contributions may suit you. But be mindful of the limits. The combined employer contributions to EPF and NPS must not exceed Rs.7.5 lakh a year, and any excess becomes taxable. So, if your NPS contributions are already substantial, increasing PF contributions may not add much for an employee's own EPF contribution, the tax-exempt limit is Rs.2.5 lakh annually. Stretching beyond this limit just to save tax may not be worth it. Invest in parents'/kin's accounts Now this may be a controversial strategy. 'We do not recommend this to anyone, as many may view it as ethically questionable,' says Raote. She isn't wrong. 'This approach can attract penalties if the intent is purely to avoid tax. It lies in the grey zone, technically legal, but ethically debatable,' agrees Nishant Khemani, Managing Partner, Saturn Consulting Group. But, if you execute it carefully with the right approach, it can prove useful in reducing your tax outgo.'The safest method is to gift surplus money to a non-earning parent and invest it through their account. Declaring it as a gift removes any tax implications on the transfer,' explains Khemani, who is a chartered accountant. Here's how it works: you gift your non-earning mother `10 lakh, which she then parks in a fixed deposit. She can either use the interest income herself or transfer it to you. But if she chooses to send it back, she must also show it as a gift to avoid any tax strategy can be used with any family member except your spouse, and minor kids. Any income earned by your spouse from the money you transfer is clubbed with your income and taxed the case of Pathak, who has been saving taxes by investing in his father's name. Since his father doesn't cross the taxable limit, the interest income escapes tax. If you choose to follow a similar path, it's wise to have a will in place, especially for large sums or where there are multiple heirs to avoid disputes in case the parent is no longer some CAs recommend this method, ET Wealth advises caution. It is a cumbersome and potentially risky practice to reduce your tax outgo, as it may run afoul of the tax authorities. From debt to arbitrage Delhi-based Nisha Yadav is a self-employed art teacher who prefers playing it safe. She has invested in multiple fixed deposits (FDs), as they align well with her low-risk appetite and offer capital protection. While FDs, arbitrage funds, and debt funds offer similar returns, the way they are taxed varies funds aim to deliver debt-like returns, but score higher due to their equity tax treatment. Debt funds are taxed annually at your income slab rate, which can eat into your returns. On the other hand, arbitrage funds are treated as equity and are only taxed at the time of redemption, and at much lower rates if held for over a year. If they are held for more than 12 months, a rate of 12.5% is applicable on Yadav shifts her investments from FDs to arbitrage funds, she benefits significantly from the power of compounding. Since the interest earned on FDs is taxed annually, compounding has a limited impact on her returns. But arbitrage funds, being taxed only at the time of redemption, allow her returns to grow uninterrupted over longer periods of making the switch, Yadav can not only reduce her tax outgo but also potentially earn higher post-tax returns compared to FDs or debt funds. To further optimise her tax strategy, she can consider practising gains harvesting which is applicable on not just arbitrage but any equity mutual fund. Gains harvesting involves booking profits of up to Rs.1.25 lakh worth of investments each year and reinvesting them at the same price. Doing so increases the cost of acquisition annually, thereby significantly reducing her future capital gains tax liability on paper.'An important point to note during gains harvesting is that the Rs.1.25 lakh capital gains exemption limit applies per PAN, per financial year,' adds example, you invested Rs.5 lakh in a fund and have a profit of Rs.1.25 lakh: you can sell these investments worth Rs.6.25 lakh, on which you are not liable to pay tax, and then buy them again after a day or so. Now your new cost of acquisition is Rs.6.25 lakh instead of Rs.5 lakh. If you are investing through SIPs, the returns are calculated using the first infirst out (FIFO) method. Consultants & presumptive tax Since Yadav is not a salaried employee, she cannot avail of benefits like employer contributions to NPS or provident fund. However, self-employed professionals like her—including consultants and freelancers—can opt for presumptive taxation scheme under Section 44ADA. This provision allows them to declare 50% of their gross receipts as taxable income, irrespective of their actual expenses. Some deductions still available in NTRWhat's allowed, what's not; how to optimise your pay slip. For example, Yadav earns Rs.20 lakh in a financial year, she can declare Rs.10 lakh as her taxable income without maintaining expense records or providing supporting documents—even if she has used the entire amount for personal use. This method eliminates the need to maintain detailed books of accounts and remains valid as long as gross receipts do not exceed Rs.75 lakh.'Many professionals, including retired individuals working as consultants, prefer this route because it significantly lowers their overall taxable income, making it a highly effective tax-saving strategy in the new regime,' says Khemani. By opting for this, Yadav can potentially reduce her taxable income enough to fall below the basic exemption limit and pay no income tax at self-employed individuals using this provision must still comply with GST regulations if their total revenue exceeds Rs.20 lakh. In Yadav's case, GST may not even apply, as the services she offers likely fall under the category of educational services, which are currently exempt. Nisha Yadav, 26Owns an art studio in south Delhi INCOME Rs.25 lakh INVESTMENTS Majorly in FDs, giving average interest of 7.5% amounting to Rs.8 lakh PAYS TAX Rs.3.1 lakh Scope for improvement: Shift to arbitrage funds and opt for presumptive tax under section 44ADA. She stands to save Rs.2.67 lakh in tax. Other deductions Even though the new tax regime has removed most common deductions, there are still a few you can claim like interest on home loan if your house is rented. As per Section 24(b), if you own a let-out property, you are allowed to claim a deduction on the interest paid on the home loan up to the extent of your rental income in a financial year. However, this benefit is not available for self-occupied homes under the new are some more deductions that you can claim that are perceived as taxable by most individuals.'The new regime explicitly lists the deductions that are not allowed. But several others are neither included nor excluded, so you can still claim those,' says Kaushik of work-related expenses continue to be eligible. 'Training or education expenses incurred for professional development can still be claimed. But if the employer is already deducting this from your salary, employees don't need to take any separate action,' adds Raote of of these deductions apply only to expenses incurred for work (see graphic), but they can still help to reduce your overall tax outgo. Make the most of whatever tax-saving opportunities exist under the new regime. However, don't invest just to save tax if it doesn't align with your financial goals or long-term investment strategy. Always compare benefits, returns, risks, and liquidity before locking in your money for any duration. N.R. 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