I am investing Rs 3.5 lakh in my daughter’s name in a bank recurring deposit for her future education needs. She will receive the lump sum maturity amount when she is 20. What will be the tax treatment for the amount at that time?
The income arising or accruing to a minor child is clubbed in the hands of the parent with the higher income
I am investing Rs 3.5 lakh in my daughter’s name in a bank recurring deposit for her future education needs. She will receive the lump sum maturity amount when she is 20. What will be the tax treatment for the amount at that time?
Saket More, Pune
You can explore investing the sum in mutual funds as well, however, under section 64, the income arising or accruing to a minor child is clubbed in the hands of the parent with the higher income (if your spouse is working, the one with the higher income between you two). Assuming that you follow cash receipt method for taxation of interest income, the total interest received by your daughter will be taxable in her hands. A better way for you would be to put this sum in a liquid fund and initiate a SIP from it into a balanced fund like ICICI Pru Balanced or ICICI Pru Balanced Advantage fund for a start. The disciplined asset allocation maintained by these funds would result in better returns than what the bank FD would pay in the long run. It will also help you save more than what you think you can with the money in bank deposits.