You are currently working and deriving a salary. It is easy to support your parents with the salary. But how about when you retire? Hopefully, you have included supporting your parents as part of your expenses when calculating how much do you need to retire. Alternatively, they have enough corpus or other income that will let them support themselves and live independently. In my case, it was a mix of both and I thought I should explain how I am handling it. May be it will help you get some clarity on how you want to go about it.
We live in Bangalore and my parents live with us for about half the time in a year. While they love to spend time with us, they also have family and friends in my home town where I grew up. So after spending a couple of months in the city, they prefer to spend another couple of months in my home town. While we can technically move to any place in India given that I am retired and my kid is home schooled, I prefer living in Bangalore. For one, the weather is great almost all year round (except for a couple of months in summer). While there is a lot of traffic and pollution, I side step both by not driving much (uber is your friend) and living in a villa with lots of greenery around. Compared to my home town, airport is closer and we get better facilities here (internet speeds, Big Basket, Uber, Swiggy etc). Anyway, back to the original story. I wanted my parents to be financially independent where ever they are and be able to pay for their expenses while also reducing tax. Given this information, what is the best way forward?
Hint: Both my parents were past 60 when I retired. Anything? Yeah Senior Citizen Savings Scheme (SCSS) of course. I asked them both to invest Rs. 15 lakhs (the maximum allowed) each into SCSS. The interest rate varies all the time, but currently it stands at about 8.70%. Even assuming an 8% rate, the monthly income comes to Rs. 10,000 to each. They submit Form 15H every year in April to make sure no TDS is deducted since their total income does not exceed Rs. 3 lakhs in a year. Next, I asked them to invest some money in ultra short term funds. That brings in some more income for them.
With the SCSS and debt MFs they are able to manage all their expenses! And the best part is that their annual income is below the nil tax slab of Rs. 3 lakhs for senior citizens. I can increase their mutual fund investments in case they need more income and they still will be under the tax bracket. For me, most of the expenses I incur on a monthly basis are expenses for 3 people (spouse, kid and myself) and when my parents visit it goes up a bit, but most of the time they are supporting themselves quite nicely.
Note that gifts to your parents are completely tax exempt, so you can transfer as much as your parents need for their investments without any worry. Just remember to report the gift in their tax forms. Note that ITR 1 does not have provisions for reporting tax exempt gifts, so you may want to use ITR 2 and report gifts in Schedule EI under Others. Mention nature of income (example: Gift received from son) and the amount. There is also no income clubbing issue in the case of parents. But if you were to gift your spouse, then the income (interest, capital gains etc) from the gift is taxable in your hands due to clubbing provision even though it is invested in your spouse’s name.
There you have it. Supporting your parents without the tax implications. If you too are in a similar situation post retirement, what would you do? Will it be any different? Post your comments below.