Have you gifted money in
relative’s bank account?
Although I am not much expert in tax
matters but I can give you fair idea on this issue. In general, many tax payer
gift to their relatives like parents, spouse and children to save the tax. It
is not so simple as the people understand. Many people just transfer the money
into their relative or friend’s account and assume that it will help them to
save tax because they have gifted away that money and because their relative
come under tax exemption limit income so they don’t have to pay any tax.
So today we will understand the tax
implication if you transfer some amount to your relatives account. What is the
tax implication on involving each party in this transaction? Let us assume you
transfer Rs 2 lakh to your wife’s bank account and your income is Rs 15 lakh
per annum. Your wife invests this Rs 2 lakh in a bank fix deposit at the rate
of 9% and earn Rs 18,000 interest income in a financial year. There are 3 types of tax liability arise
in this case.
Tax liability on husband or donor for the amount gifted:
In this case, husband can never claim any
type of tax deduction or exemption on that gifted amount (Rs 2 lakh). You have
to pay tax on your entire income Rs 15 lakh after deducting eligible available
exemption or deduction section 80C etc. After paying tax, he can gift any
amount to any relative.
Tax liability on wife or receiver for the amount received:
In this case the wife has no tax
liability because she has received the gifted amount from her husband, who
comes under specified list of relatives. She can receive any amount from these
types of specified list of relatives and still will not be any tax liability.
If she receive gifted amount from any other individuals that amount would be taxable
on her hand.
Tax liability on income earned from invested gifted money:
In this case wife has earned interest
income Rs 18,000 by investing gifted amount Re 2 lakh in bank FD. Although the
interest income comes in wife’s account but in this case she has no tax
liability and the same interest income clubbed with husband’s income and her
husband pay the tax on her interest income.
The interesting point is that if she
further invests this interest income Rs 18,000 in bank FD again and earns
income on invested amount then she will be liable to pay tax on the interest
income earned by investing Rs 18,000 in bank FD.
If you gift the money your parents name
and major child then the income earned on that gifted amount will not be
clubbed in your taxable income. There are lots of ways to save income tax by
restructuring investments in relative’s names. In general, people do not have
much time to plan all this and for years they pay higher income tax and never
optimize it. You should consult from a good CA for these types of tax saving
strategy.
If you have doubt about investment
product and want more information regarding investment or you need investment
services, feel free to ask us. We also conduct the seminar on investment and
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just drop the mail.
Warm regards,
Arvind Trivedi
Certified Financial Planner
