If you trade in the stock market, then one of the ways to cash in on the benefits of long-term investing is by buying shares in your child’s name. Experts say people tend to hold stocks for a longer period when they buy in the name of their kids, especially when they align it with benchmark goals such as a child’s education.
“One of the benefits of investing in your child’s name is effective financial planning. Opening a minor Demat account allows you to secure your child’s future and plan finances effectively. The funds accumulated can be used to achieve long-term goals like higher education, marriage, financial support to start a business, etc.,” says Tejas Khoday, CEO and co-founder of FYERS.
Another advantage is it encourages financial literacy at a young age. “Opening a minor Demat account inculcates a capability to grasp the basics of savings and investment early in life. Growing up, a child can also involve themselves in understanding the nitty-gritty of the stock market,” adds Khoday.
Parents or legal guardians interested in investing for their children can start by opening a minor Demat account provided they have a Demat account with the company.
Here is the step-by-step procedure if you want to buy shares in your child’s name:
1. Log in to the website and click on the ‘Manage Account’ option and select ‘Open Minor Account’ to initiate the account opening process.
2. After this, you should upload the PAN of your child and enter the requisite details (Gender, Mother’s name, etc.)
3. Further, you are required to upload the proof of address of your child and enter the child’s bank account details with a six months bank statement.
4. Post this, upload your child’s picture and signature image, and proceed with e-signing.
5. Complete the E-signing process using your (parents’ or legal guardians’) Aadhaar card and the account post verification of details.
How is income in your child’s name taxed?
As per section 64(1A) of the Income Tax Act, 1961, any income generated by a minor child gets clubbed with the parent’s income and is taxable at the applicable rates. “It is important to note that if both parents work, the minor’s income is clubbed with the parent earning a higher income (excluding the child’s income). As per section 10(32) of the Income-tax Act,1961, a taxable investment in the name of the child provides an opportunity to claim an annual exemption of Rs 1,500 per child,” says Khoday.
Moreover, income from dividends or capital gains is clubbed with parents’ or legal guardians’ income and is taxable at the applicable rates. Khoday adds, “In respect of the minor Demat account, the minor child’s parents or legal guardian can sell shares and mutual funds received in the form of gift, donation, inheritance, IPO, Corporate actions, off-market transfers between family members, and off-market transfers on-account of implementation of government/regulatory directions or orders.”
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