The definition of parents for the purpose of claiming tax benefit encompasses both parents as well as parents-in-law. And there are various grounds available on the basis of which you can ask for tax rebate and hence lower your tax liability for the given FY. Some such avenues or options are listed below:
1. The more known is investment in an health insurance policy that provides relief under section 80D. While the health insurance policy for self, spouse and child allow a maximum tax relief of Rs. 15,000 for the premium amount tendered towards the policy. The same in case the parents of the assessee fall in the senior citizens category, can be claimed for a maximum of Rs. 20,000 per parent else to the maximum of Rs. 15,000 under section 80D. Note the relief is allowed for both financially dependent as well as independent parents.
2. For reducing your tax liability you can also make rent payment to your parents if you reside in the premise that is registered in their name. Nonetheless, tax liability for the rental amount received by your parents shall apply which can be reduced by them by investing in either Senior Citizen Savings Scheme or by claiming available standard deduction of 30% in lieu of the amount received as rent for house maintenance.
3. Another way to reduce your tax burden is through transferring some of your funds either as loan or gift in your parents or parents-in-law name. So, consequently, any income earned on such parted funds shall then be taxable in the hands of parents or parents-in-law.
In case you as a parent are paying the fees of your school going child, the same is allowed to be claimed for tax deduction. Also, in its respect school tuition fees for the maximum of Rs. 1 lakh under section 80C can be claimed. Furthermore, though not a common case in today's urban society, if you have a third or fourth child, tax deduction for the third or fourth child for the tuition fee paid can be claimed by your spouse. Such tuition fee details are to be mentioned while filing the returns. Such a tax rebate can be claimed only by the individual assessee and not an HUF.
To know about other tax rebates and deductions that can be claimed for other expenses and investments in dependent child's name click here.
The tax relief through the spouse can be availed by lending her or him an amount for making property investment and as long as the rent for it is paid by your spouse, any rental income from the property shall be taxable in your spouse name and not yours. The allowed limit for such a lending is Rs. 2 lakh that does not result in any tax liability for the spouse.
So, through this exercise you actually can take advantage of the lower income tax slab of your family members by shifting the income tax liability befalling you to your family members.