Gifting to wife and son: It is common in India to give gifts to family members. People often gift their wife and children on special occasions like anniversary or birthday. However, tax rules should always be taken care of while giving gifts, whether they are now giving gifts to their wife or child. Mumbai’s tax expert Balwant Jain says that the basis of tax on the gift amount depends on who is given the money and how it is used.
Gift tax free, but with boundaries
Jain says that under the general rule, if a person gets a gift of more than Rs 50,000 annually, then this entire amount is taxed by adding to his income. But wife and children are out of this rule.
This means that if you gift lakhs of rupees to your wife or son, then it will not be added to their income and they will not have to pay tax. Also, the already existing donor-based tax on the gift giver has no effect as it was eliminated long ago.
How does wife get tax on gift
However, the original gift is tax free, separate rules apply to income from that money. Balwant Jain says that if there is an income like bank interest or returns of mutual funds with the money given to the wife, then it will be included in your income. According to the rule, tax will also have to be paid.
This is called Clubbing Provision (Section 64). But, if the wife spends only money or imposes in non-incom-asset, then no tax will be levied.
What are the rules about the gift to the son
The rules are slightly different in the son’s position. If the son is an adult, his income will be taxable on his own name. But if the son is a minor, then his passive income, whether it is from gift or other source, will be included in the earnings of the parent, which earns more income.
According to Jain, once the income of Minor’s income is included in the parent’s earnings, the same will remain in force in the next years until the Income Tax Officers give separate instructions. If the parents are legally different, the income will be included in the parent’s earnings that takes care of the child.
Taxing and planning on investment
Balwant Jain advises that it is necessary to understand tax rules before investing gift money. Gift to adult child or wife is the most tax-friendly. At the same time, while gifting for a minor child, keep in mind that passive income will be included in the parent’s earnings. This will be added to the high -earning parents, even if the gift is given by any parent.
In such a situation, it is necessary to make the correct investment plan through the gift and keep a record of returns, so that there is no dispute at the time of tax filing.
What was the rule of gift tax earlier
Earlier there was a Gift Tax Act in India. In this, there was a tax on the gift. But this act was abolished in 1998. Now the gift tax system is only from the receiver i.e. the gift, and that too when the gift is not from anyone and is more than ₹ 50,000.
Now any gift given to wife and children (adults) is completely tax-free. However, if the income generates from the gift, the clubbing rule will be applicable.
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