'Over ₹37,500 on...': This 18th-birthday tax rule can slash your child’s education costs
According to Sharan Hegde, finfluencer and entrepreneur, many wealth managers avoid suggesting this strategy because it reduces the assets under their management (AUM) in the parent’s name — translating to a direct reduction in their revenue.
- Nov 15, 2025,
- Updated Nov 15, 2025 8:58 PM IST
As higher education costs skyrocket, lakhs of Indian parents find themselves preparing for hefty education loans to secure their children’s future. But in the middle of this financial pressure, there’s a powerful, almost unknown tax strategy that could lighten the load long before a bank loan ever becomes necessary.
In a viral post on X (formerly Twitter), Sharan Hegde, finfluencer and entrepreneur, revealed how most Indian parents unknowingly lose ₹37,500 or more in taxes while saving for their child’s education — a loss that can be avoided with one simple investing shift.
Hegde wrote, “Most Indian parents lose ₹37,500+ in taxes on their kids' education funds. Here's the tax hack wealthy families use but no one talks about.”
His thread breaks down the psychology of Indian households, where parents willingly spend lakhs on education, yet overlook tax-efficient planning that is fully within their control.
Invest in MFs in child's name
Hegde explains that parents can significantly reduce the tax burden on long-term education savings by investing in mutual funds under their minor child’s name, with the parent acting as a guardian.
Once the child turns 18, they become a separate legal entity under the Income Tax Act, meaning the income generated from such investments — especially capital gains — is taxed in the child’s hands, often at a much lower or even zero rate.
₹37,500 saved on one goal
To illustrate, Hegde compared two parents — Ram and Shyam — who each invest ₹10,000 SIP for 6 years in the same mutual fund yielding 15% returns.
- Both end up with a corpus of ₹11.71 lakh, including ₹4.51 lakh in capital gains.
- Ram, who invested in his own name, pays ₹40,774 in taxes.
- Shyam, who invested in his child’s name, pays just ₹3,274, thanks to the child’s available basic exemption limit plus mutual fund exemption.
The difference: a tax saving of more than ₹37,500.
Why this works
Under current tax rules:
- Capital gains from investments made in a minor’s name are clubbed with the parent until the child turns 18.
- After 18, the income is treated separately.
- Because most children have no taxable income, gains often fall within the ₹3 lakh basic exemption limit, resulting in minimal taxation.
Common mistakes to avoid
Hegde warns that the hack works only if executed carefully:
- Don’t redeem before the child turns 18 — otherwise, the entire gain gets taxed in the parent’s hands.
- Ensure proper KYC — the child must be the beneficiary, not merely a nominee.
- Know that control shifts at 18 — once legally an adult, the child gains full authority over the investment.
“Timing is everything,” Hegde emphasises.
According to Hegde, many wealth managers avoid suggesting this strategy because it reduces the assets under their management (AUM) in the parent’s name — translating to a direct reduction in their revenue.
“Your tax savings = their revenue loss,” he wrote.
Hegde concludes by noting that India’s taxation system is full of complexities and that this is just one strategy among several that informed families can use to reduce unnecessary financial leakage.
As higher education costs skyrocket, lakhs of Indian parents find themselves preparing for hefty education loans to secure their children’s future. But in the middle of this financial pressure, there’s a powerful, almost unknown tax strategy that could lighten the load long before a bank loan ever becomes necessary.
In a viral post on X (formerly Twitter), Sharan Hegde, finfluencer and entrepreneur, revealed how most Indian parents unknowingly lose ₹37,500 or more in taxes while saving for their child’s education — a loss that can be avoided with one simple investing shift.
Hegde wrote, “Most Indian parents lose ₹37,500+ in taxes on their kids' education funds. Here's the tax hack wealthy families use but no one talks about.”
His thread breaks down the psychology of Indian households, where parents willingly spend lakhs on education, yet overlook tax-efficient planning that is fully within their control.
Invest in MFs in child's name
Hegde explains that parents can significantly reduce the tax burden on long-term education savings by investing in mutual funds under their minor child’s name, with the parent acting as a guardian.
Once the child turns 18, they become a separate legal entity under the Income Tax Act, meaning the income generated from such investments — especially capital gains — is taxed in the child’s hands, often at a much lower or even zero rate.
₹37,500 saved on one goal
To illustrate, Hegde compared two parents — Ram and Shyam — who each invest ₹10,000 SIP for 6 years in the same mutual fund yielding 15% returns.
- Both end up with a corpus of ₹11.71 lakh, including ₹4.51 lakh in capital gains.
- Ram, who invested in his own name, pays ₹40,774 in taxes.
- Shyam, who invested in his child’s name, pays just ₹3,274, thanks to the child’s available basic exemption limit plus mutual fund exemption.
The difference: a tax saving of more than ₹37,500.
Why this works
Under current tax rules:
- Capital gains from investments made in a minor’s name are clubbed with the parent until the child turns 18.
- After 18, the income is treated separately.
- Because most children have no taxable income, gains often fall within the ₹3 lakh basic exemption limit, resulting in minimal taxation.
Common mistakes to avoid
Hegde warns that the hack works only if executed carefully:
- Don’t redeem before the child turns 18 — otherwise, the entire gain gets taxed in the parent’s hands.
- Ensure proper KYC — the child must be the beneficiary, not merely a nominee.
- Know that control shifts at 18 — once legally an adult, the child gains full authority over the investment.
“Timing is everything,” Hegde emphasises.
According to Hegde, many wealth managers avoid suggesting this strategy because it reduces the assets under their management (AUM) in the parent’s name — translating to a direct reduction in their revenue.
“Your tax savings = their revenue loss,” he wrote.
Hegde concludes by noting that India’s taxation system is full of complexities and that this is just one strategy among several that informed families can use to reduce unnecessary financial leakage.