Know clubbing provision before gifting to wife
TAX TALK-13.06.06.2016-THE HITAVADA
TAX TALK
CA. NARESH JAKHOTIA
Chartered Accountant
Query 1]
Part A:
My wife, son & I have a separate savings bank A/c at same branch of SBI. Soon, I am going to superannuate. On retirement, I want my wife SB A/c to be converted into a joint A/c by including my name as second holder. I want to transfer a lump-sum amount say Rs. 30 Lacs to that joint A/c from my superannuation benefits received by me and that amount would be kept in FD. My queries are:
- Is the yearly interest on FD not taxable in the hands of my wife, up to Rs. 2.50
lacs in this case? My wife, as first holder of joint A/c, is a housewife & has
no other income and 80C benefits.
- In this bank transfer case, should I have to mention it as gift to my wife?
- Can I operate the A/c through my single signature in cheque book?
- Can I apply ATM card for this joint A/c to withdraw the money when required?
- What type of joint A/c is better in this case?
- What will be the answers of the above queries in case I open the joint A/c (Wife + myself) for MIS of Rs. 9 lacs in Post office? [Sukumar Samui- samui1956@gmail.com]
Part B:
I know that a father can gift an immovable property or cash to his son without having any tax effect. But, I want to ask that whether income generated from these gifted property would be clubbed in hands of father or son? I also want to know the tax effect of similar situation in cases of wife, grandson (minor and major both). Whether any gift deed needs to be prepared? If yes, then how much value of stamp paper needs to be registered? [adityapatel025@gmail.com]
Opinion:
Gift or Transfer of funds to the family members or investment in their name could be a genuine emotional expression. After all, it’s all in the family. At the same time, it could be a powerful tool to reduce the overall tax impact as well. However, before using the gift as a tool of tax planning, one must understand the clubbing provision.
Understanding clubbing provision:
​Normally, a person is taxed in respect of income earned by him. However, in certain
special cases, income of other person needs to be included (i.e. clubbed) in the taxable income of the taxpayer and in such a cases, he will be liable to pay tax in respect of his own individual income as well as income of that other person. The situation in which income of other person is required to be included in the income of the taxpayer is referred to as “Clubbing of Income”. The idea behind clubbing is to ensure that there is no avoidance of tax by an individual who has a lot of assets and hence is looking to spread this across different names.
Part A: Income from assets transferred to spouse:
By virtue of specific clubbing provision, where an asset is transferred by an individual to his spouse directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, any income from such asset is deemed to be the income of the transferor. Like in your case, you intend to gift the amount to your wife which she would be investing in bank FDR or elsewhere. Income by way of Interest etc from such investment/FDR would not be treated as her individual income but would be clubbed with your income for taxation purpose.
Even though you could solely operate bank account/ATM after completing the formalities in the joint bank, tax saving via gifting the amount to spouse would is not possible.
Alternate option: Clubbing provision is not applicable in respect of gift done to major son/daughter. If your son is major, you can gift the amount to him and as a result, income arising therefrom would not be subjected to clubbing provision in your hands.
Part B:
Gift by father to major son/Daughter would be outside the web of clubbing provision. In case of amount gifted to grandson/daughter, clubbing provision would not apply in the hands of grandfather or grandmother. Clubbing provision in the hands of the parents is applicable in respect of all the income accruing to minor child (other than the income arising to minor child from manual work or from activity involving application of his skill, talent, specialized knowledge and experience).
Query 2]
Can a father, by investing amount in his son PPF, claim deduction u/s 80C? Please advice. [adityapatel025@gmail.com]
Opinion:
Yes, father can claim deduction u/s 80C by making the deposit in the PPF account of his son/Daughter.
Query 3]
Sir, I am a central government officer (Group-A) posted at Raipur, age 31 years. As a salaried employee, I used to pay my income tax on time (deducted from my salary by the department). I have paid my income tax for the last fiscal year 2015-16 by the month of March. Though I have paid my income tax regularly on time but I have never filed my income tax returns. I just came to know that it is mandatory to file the ITR also. Therefore, it is kindly requested to guide me accordingly that whether I should file ITR of the year 2014-15 also or start it from 2015-16.? [Sanat, Raipur -sanatpatel26@gmail.com]
Opinion:
Lot many salaried taxpayer don’t file the return with a belief that the tax deduction at source by the employer has relieved them from the mandatory liability of filing income tax return. This is not so. Even if the tax liability is duly discharged through TDS, still the employee would be required to file the return of income if gross total income is exceeding the basic exemption limit. With 100% computerization of return filing data, every non-filers, sooner or later, would be getting notices form income tax department. In your case, you can, and you must, file the income tax return for the FY 2014-15 without any further delay.
[It may be noted that a Penalty of Rs. 5,000/- may be levied if any person who is mandatorily required to file the income tax return fails to do so before the end of the relevant assessment year -Section 271F of Income Tax Act-1961].
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com]
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