How to secure your child’s future and save tax

Jan 04, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

If rising costs are a concern for your child’s future, then read on to know on how to plan for one.

As parents, we do almost everything to secure our child’s future. But rising costs remain a concern. Inflation is taking a serious toll on our purchasing power. And, the cost of education is getting increasingly expensive. Does this mean as parents we give into these rising costs and stop planning for our child’s education? In this scenario, child life insurance plans offer support. What’s more? These plans offer an opportunity for tax saving, which makes them a great buy.

Child plan benefits

Child plans are often compared to other insurance plans with a fund component. The latter pay a death benefit to the nominee if the policyholder dies. But the policy terminates immediately. A child insurance plan also offers a death benefit. But the difference is that the policy continues. So, if you have kids or are planning to have one, make sure to have a child plan in your financial portfolio.

If you are averse to taking risks, in that case, explore traditional child plans that invest only in debt.

Whatever the returns may be, child plans have an added perk—that of tax benefits.

Tax benefit on child plan insurance premiums: The premium paid for a child plan is eligible for tax deductions under Section 80C of the Income Tax Act. You can claim a deduction from your taxable income for this. The deduction is up to Rs 1.5 lakh a year.

Tax benefit on income from child plan: Any income from the plan is tax-free under Section 10 (10D).

As a parent, there are other tax benefits you can avail as well. Here is a quick checklist:

Medical expenses of children: The parents of children with special needs can claim tax deductions from their annual income. This is available in some cases:

  • Money spent on child’s medical expenses: Claim up to 33% deductions under Section 80 DDB.
  • Expenses relating to minor and major disability of child: Claim deduction up to 40% (minor disability) and 80% (major disability) of expenses under Section 80DD.

Higher education loan: Higher education expenses are shooting up by the day. It is hard to imagine how much it would all cost when your child is ready for higher studies. But you could take a loan for your child’s higher education. Under Section 80E, the interest you pay on the loan would be tax deductible.

Formation of a fund: Claim partial tax deductions from a fund you set up exclusively for your child. All you have to do is transfer the amount to a separate fund meant for your child. Do not claim any sum from it before the child is old enough to pursue higher studies.

Tuition fees: Under Section 80C, claim an annual reduction of up to Rs 1 lakh on tuition fees for your child. The exemption is available for up to two children. But to avail this benefit, the tuition fees must fall under a prescribed bracket. Higher fees may not qualify for exemptions.

The last word

If you are looking for a child plan that takes care of your child’s future and saves on tax, then Aegon Life’s iMaximise Plan has got you covered. It provides consistent market-linked returns to investors, two death benefit options, and receives tax benefit under Section 80C and 10(D) of the Income Tax Act. Moreover, in case of an unforeseen event, your child or nominee will receive the financial support assured according to the death benefit you have opted for keeping your dreams for your child a reality.

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