Dear Sir If I transfer from my Savings Account Rs. 10 lacs to my wife's bank account as gift whose income is less than mine and she is tax payer and similar amount as gift to my unmarried daughter studying and If they both invest this amount in bank FD,mutual funds or tax free bonds , I want to know who will be liable to pay tax on the interest income on these investment . This I want to do as part of tax planning to save tax on my income. From tax saving point of view is this correct in eyes of tax department. Thanks Dr Dinesh
Any gift of funds to spouse will attract provisions of clubbing of income in your hands as per income tax act. Therefore income from gifted amount to spouse will have to be included in your hands as per clubbing provision.
Your query does not reveal the age of your daughter, if she is a minor then the gift of funds to her will not attract provisions of clubbing in your hands and you can go ahead with such planning.
When you transfer money to your spouse as gift, income earned on such income is taxable in the hands of transferor.
When you transfer money to your minor daughter, income from the same will be will still be clubbed in your income (assuming that your income is more than your spouse's income), but you will get exemption of Rs. 1500per annum per child.
When you transfer money to your major daughter, income from the same will not be clubbed in your income.
It may be interesting to note that interest on interest may not be clubbed.
Since mutual fund dividend or tax free bond incomes are not taxable at all, there is not question of the income being added, however, you may show the same in your return as clubbed income and show exempt.
The income received on the investment from the money transferred to wife and daughter will be taxed in your hand as per clubbing provisions of the income tax act
