GIVE AND RECEIVE Gifts are not taxed, but income from them is. And who pays the tax? Giver or the receiver?
Any transfer of assets to close relatives--parents, spouse, siblings, children--is not taxed. And there is no cap on it. Many , especially those in the higher tax brackets, use this rule to cut their tax bill by investing in the name of their relatives who are either out of the tax net or in the lower slabs. Although the `gift' transferred is not taxable, any in come arising from that asset is fully taxable in the hands of the transferor.
If you invest the gifted money, Section 64 of the Income Tax Act, a provision for clubbing income, kicks in.
Meaning, when you open a fixed de posit with money received from your spouse or buy a house, income earned from this asset is added to the taxable income of your spouse. If you have opened a savings account or a Bank FD in the name of your minor child, you can claim an exemption of up to `1,500 per child in a year (for two children only).
Any income generated from gifted money has to be shown in the `income from other sources' sheet (Schedule OS) and also in the `income from specified persons' sheet (Schedule SPI) of ITR of the transferor.
Remember to make both en tries, as Schedule SPI is only a declaration schedule.
Nowhere in the total income sheet is there a link for adding the clubbed income from SPI.
Therefore, the clubbed income needs to be declared under specific schedule of income also such as in come from house property, capital gains or professional gains or business income.
Investments details will still be shown under the income tax return of receiver as, legally, he / she is the owner of the particular asset. You are eligible to set off a short-term capital loss as well.
In case of deposits, a declaration should be submitted to the bank stating that although the amount is invested in the wife's name, TDS should be deducted in the husband's PAN. If you have informed the bank, this income shall be the income of the husband and TDS shall be deducted in his PAN.
The situation becomes complicated if TDS is already deducted and it shows in your spouse's Form 26AS. In that case the income must be declared by them in their ITR under the head income from other sources and also as an expense specifying that the entire interest has been paid to you. In the ITR, under income from other sources there is Section 57, which allows for such deductions. You can show the entire interest income under this section as being paid back to your spouse. Once transferred, you will have to declare this interest income in your ITR as income from other sources (received from your spouse) and pay tax on it.
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