• Tax on gift to immediate relatives

Is there any tax on gift of money or shares(Is there any limit to the amount of money or shares that can be gifted) by a donor(father, husband , Karta) to recipient (son, wife and HUF)and Is Income generated from Gifted money by way of interest or capital gains taxed at the hands of the donor(father,husband,karta) or recipient(son,wife,HUF)?
Asked 20 days ago in Income Tax

There is no one answer to all these questions, as there are different bundle of questions that would depend on situation to situation.

Like giving gift to relative is tax free but gift in cash above Rs. 2 lakh could attract penalty.

Gift to wife or daughter in law could attract clubbing of income generated through such gift.

 

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Thank you.

Naman Maloo
CA, Jaipur
4280 Answers
98 Consultations

5.0 on 5.0

1) Gift to close relatives is not taxable either in the hands of the donors or donees as they are specifically excluded from gifts that need to be included. Please refer to Section 56(2)(x) of the Income Tax Act. 

2) Please note that the donee has to disclose the gift in his/her Income Tax Return and claim as non taxable. 

3) Please note that any cash gift for Rs 2 Lakhs and above attracts penalty of equivalent amount in the hands of the donee. Please refer to Section 269ST of Income Tax Act.

4) The income earned by the donee on such gifts may be clubbed in the hands of the donor. For instance, husband deposits a sum of say, Rs 10 L to his wife, which is kept in a FD. The interest on such FD will be clubbed  with the income of the husband. Please refer to Section 64 of the Income Tax Act .

If the amount is signifcant, please take proper professional advice for tax planning and compliance with the disclosures. 

B Vijaya Kumar
CA, Hyderabad
1007 Answers
124 Consultations

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Taxation of Gifts:

  1. Tax Exemption for Gifts from Specific Relatives: Gifts of money or shares received from close relatives such as a father, husband, or Karta to a son, wife, or an HUF are exempt from tax. There is no upper limit on the amount that can be gifted, making these gifts non-taxable under Section 56(2)(x) of the Income Tax Act.

  2. Disclosure Requirements: Although these gifts are exempt from tax, it is mandatory for the recipient to disclose these gifts in their Income Tax Return as non-taxable income. This helps maintain transparency and compliance with tax regulations.

  3. Penalty on Cash Gifts Above a Certain Limit: Cash gifts exceeding ₹2 lakhs are subject to a penalty under Section 269ST of the Income Tax Act. This penalty, which equals the amount received, is imposed on the recipient of the gift. This provision aims to curb large unaccounted cash transactions.

Taxation of Income from Gifted Assets:

  1. General Rule: Income generated from investments made with gifted money, such as interest or capital gains, is generally taxed in the hands of the recipient. This includes income from fixed deposits, dividends, or capital gains from shares.

  2. Exceptions - Clubbing of Income:


    • Spouses: If a husband gifts money to his wife, and the wife invests this money, the income generated from such investments (e.g., interest from fixed deposits) is clubbed with the income of the husband and taxed accordingly. This rule is outlined in Section 64 of the Income Tax Act.

    • Parent to Minor Child: Income generated from gifts given by parents to their minor children is also clubbed with the income of the parent who has the higher income, except when the income arises due to the child's manual work or activity involving application of skill, talent, or specialized knowledge and experience.

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
238 Answers
4 Consultations

5.0 on 5.0

Yes he can give but please note there will be a TCS of 20% charged by bank on any gift paid to NRI above 700000 which father can claim as credit while filing his return of income.

Naman Maloo
CA, Jaipur
4280 Answers
98 Consultations

5.0 on 5.0

- Gift of money, immovable property, movable property between relatives as defined u/s 56(2)(x) is exempt from tax in the hands of recipient

- Recipient should disclose the amount of gift in his return of income

- In case of gift between husband and wife or vice-versa, income arised out of the asset transferred is considered as income of the transferor spouse. Interest and capital gain would be taxable in the hands of transferor spouse. 

- In case of transfer from father to NRI son, TCS@20% would be collected by the bank if the amount of remittance exceeds Rs.7 lacs per annum. Father can claim TCS credit against final tax liability. USD 2.50 lacs p.a. is a threshold under FEMA for LRS (liberalised remittance scheme) 

- In case of transfer of capital asset by way of gift, cost and holding period to the previous owner is considered while calculating capital gain

 

For detailed discussion you may opt for phone consultation

Vivek Kumar Arora
CA, Delhi
4863 Answers
1052 Consultations

5.0 on 5.0

  1. ₹2 Lakh Limit: Applies only to cash gifts. No limit on non-cash gifts (e.g., shares).

  2. Gifts to NRI Son:


    • Limit: Up to USD 250,000 annually under the Liberalized Remittance Scheme (LRS).

    • TCS: For remittances exceeding ₹7 lakhs per annum, TCS at 20% is collected by the bank. This can be claimed as a credit in the father's tax return.

    • Taxation: Gifts from father to son are tax-exempt. Income generated from the gift is taxed in the son's hands, except if clubbing provisions apply.

  3. Disclosure: Both the donor and recipient must disclose the gift in their respective tax returns.

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
238 Answers
4 Consultations

5.0 on 5.0

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