Tax-saving tips for parents: How a couple can save money with a newborn

Bringing a child into the world is an exciting and joyous time for any couple, but it also comes with its fair share of financial considerations. The expenses, ranging from diapers to daycare, can accumulate rapidly. However, strategic planning and savvy budgeting techniques can empower new parents to manage these costs effectively without straining their finances.

In this piece, we will explore some tax money-saving tips for couples embarking on this wonderful parenthood journey, helping them make the most of their finances while providing the best for their newest family member. Some of them are as follows:

Investment under Sukanya Samriddhi Yojna (SSY): The scheme is a government-backed savings scheme in India specifically designed to promote the financial security of girl children. The said scheme encourages parents or guardians to save for the future expenses of their girl child, such as education, marriage, or other life events. Opening a Sukanya Samriddhi Account under the government's scheme can provide tax benefits under Section 80C under the overall cumulative limit of Rs 150,000. The scheme has the following features:

Dr. Suresh Surana, Founder of RSM India, said, “An SSY account can be established in the name of a girl child until she reaches the age of 10 years, with the provision for withdrawals permitted for the purpose of funding her higher education expenses. In the event of a girl child's marriage after reaching the age of 18 years, the account can be prematurely closed. Furthermore, the account will reach maturity upon completion of 21 years from its opening date.”

Claiming Deductions under Section 80C: Parents can claim deductions under Section 80C of the Income Tax Act, 1961 (‘the IT Act’) for certain expenses incurred/ investments made on behalf of their children. For instance, tuition fees paid for children’s full-time education in India (up to maximum 2 children), life insurance premiums paid for the children, investment in PPF, etc. This deduction is available for up to Rs 1.5 lakh per financial year (including the threshold limit of deduction under section 80C claimed by the parents).

Claiming Health Insurance Premiums Paid for Children (80D): Parents can claim deductions for mediclaim premiums paid for their children under section 80D of the IT Act. Such deduction would be restricted to Rs 25,000 and would also include Rs 5000 deduction claimed for preventive health check-up.

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Availing Leave Travel Allowance (LTA) [10(5)]: Surana said, “In case parents are salaried taxpayers and are travelling with their newborn child, they can claim exemption u/s 10(5) for certain travel expenses incurred on behalf of the child. When travelling with your newborn. This benefit is available for up to two children and can be availed for 2 journeys performed in a block of 4 calendar years commencing from calendar year.” The current block spans from 1 January 2022 to 31 December 2025, covering the years 2022 through 2025.

Child Education and Hostel Allowance: [10(14)]: Salaried taxpayers who receive children's education allowance as a component of their salary can avail tax exemption under section 10(14) of the Income Tax Act, allowing for Rs 100 per month per child, up to a maximum of two children. “In case the child goes to a boarding school, a further exemption of Rs 300 per month per child can be availed,” said Surana.

Clubbing Provision: Earning Income in Child's Name [10(32)]: “If the parents are investing money in their child's name and the income generated from those investments is clubbed with the income of their parents. Parents can claim an exemption of up to Rs 1500 per minor child pa (maximum up to two children) for any income earned from such investments which are clubbed with the income of the parents,” said Surana.

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