If your parents' income is below the basic exemption limit or in a lower tax bracket, while yours is in the higher bracket of 30%, you can earn tax-free income by gifting them money and investing it. The exemption limit for senior citizens (above 60 years) is `3 lakh and for super seniors (above 80 years) it is `5 lakh.

Also, unlike investments in the name of a spouse or a minor child, there is no clubbing of income for parents (in come they earn will not be clubbed with your income and taxed). So, a parent can essentially earn a tax free income of `3 lakh. If they in vest in a tax-saving scheme un der Section 80C, they can earn up to `4.5 lakh a year without paying tax.

INVEST IN THE PPF IN THEIR NAME

If you exhaust your Section 80C limit of `1.5 lakh by investing in other avenues, you can invest in the Public Provident Fund account of your parents and earn tax-free income. The current interest rate for the PPF is 8.1%. In fact, you can deposit `1.5 lakh in each of your parents' names and claim `3 lakh as deduction, which can earn tax-free income.

INVEST IN TAX-FREE BONDS

You could also invest in long-term tax-free bonds in your parents' name. These are for the long term (10, 15, 20 years) and interest income is tax-free. This interest can be invested by the parents in other saving schemes like the Senior Citizen Savings Scheme, which offers 8.6% interest, to lower tax liability.

TRADE IN STOCKS IN PARENTS' NAME

If your parents' income is less than the basic exemption limit of `3 lakh, the short-term capital gains will not attract 15% tax. So you can open a demat account in their name and trade in stocks.

OFFSET CAPITAL LOSSES

If you have incurred long-term capital losses, you could offset them against long-term capital gains by making an off-market transaction. Since it's difficult to find off-market buyers, you could sell the shares to your parents and offset your losses.

PAY THEM RENT AND CLAIM HRA

You could lower tax liability if you are living with your parents and the house is registered in their name. If you are salaried and receive house rent allowance, you could pay them rent and claim tax exemption. Make sure that your parents' income is below the basic exemption limit to avoid raising their tax liability.

HEALTH INSURANCE PREMIUM

If you buy a medical insurance policy for your senior citizen parents and are paying the premium, you can claim an exemption of `30,000 under Section 80D.

MEDICAL TREATMENT DEDUCTION

You can claim `60,000, or amount actually paid, whichever is lesser, as deduction for medical treatment of your parents if they suffer from specified diseases (such as Parkinson's disease, dementia, cancer, etc.) under Section 80DDB.