How can opening a kid's savings account help you avail tax benefits?

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For financially disciplined parents, one of the best ways to teach their kids about the importance of money is by opening a kids bank account. Such bank accounts may not just teach your child positive money habits at an early age but also permit you to avail some tax benefits.

However, before opening a child savings account, it is necessary for you to do your own research to zero in on a prudent savings account. Discussed here are the tax benefits you may get on opening an offline or online bank account in your kid’s name and other crucial benefits.

Tax Benefit on Opening a Kids' Bank Account

Parking your funds under your kid’s name can assist you to save on some taxes. If you keep your funds in your kid’s bank account, may it be a fixed deposit or savings account, you can easily claim a tax deduction of up to Rs 1,500 on the interest constituent earned as per Section 10 (32). Note that, you can get this tax benefit on up to three kids, meaning you can claim an overall deduction of Rs 4,500 (Rs 1,500 X 3).

Other Benefits of Opening a Children’s Bank Account

Introduces the Habit to Save Early

Your child may get excited upon seeing the compounding effect that allows the parked funds to grow rapidly over time. This is a rewarding and positive experience that can help your kid realise unnecessary splurging of money is responsible for financial instability. A few banks even offer children’s bank accounts with a passbook. Using this bank passbook, your child can timely update the bank journal and get to know about the account balance, distinct transactions and interest constituent earned on the minor account balance.

Allows to Learn About Investments

Opening a kid’s savings account endows your kids access to a bank account, which helps them to not just understand the importance of saving but also investing. As your kid gets older, they easily can use the money parked in their savings bank account to fund their investments and get a better understanding on products like bonds, stocks, and mutual funds.

Endows Financial Independence

By permitting your kid to manage the kid’s savings bank account, they tend to learn crucial lessons on financial independence. Lessons on financial independence and stability encourage your kid to save funds in a bank account to meet big-ticket purchases such as a mobile phone, a new bicycle, a watch, and other products.

Managing the bank account on their own even makes them understand the time and effort that often goes into saving and investing to grow money quickly. With such realisations, your kid has a lesser chance of blowing the liquidity stored in the savings bank account on unnecessary purchases.

How to Open a Kids Savings Account With Kotak?

Firstly, check the eligibility criteria to understand if your child qualifies for Kotak’s Junior savings bank account. The criteria include – your child’s age must be less than 18 years, must be an Indian resident, and you i.e., the parent of the kid, must also be an Indian resident.
Next, keep handy the valid documents to qualify for the minor’s savings account. These documents include your valid identity proof (passport, driving license, voter’s ID, or Aadhaar), address proof (voter’s ID, driving license, passport, utility bill, bank statement, Aadhaar, bank account statement, etc.), signature proof (PAN card, passport or driving license) and minor’s proof (Aadhaar or birth certificate). Ensure to self-attest all these documents before submitting them whether through online or offline platforms.
Once, you have reviewed the eligibility criteria and accumulated all the valid documents, you can either physically visit the nearest Kotak branch or Kotak’s online website to apply for a minor savings account.

Conclusion

While a savings bank account is important for a kid’s financial literacy, it is important for you as parents to monitor their account’s activity and guide them constantly to manage their money. Ensure to remember and avail the tax benefits that you are permitted on minor savings account.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.

How Can Opening a Kid's Savings Account Help You Avail Tax Benefits?