Gift to brother-in-law having salary income

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Snehashish Ghosh (Querist)
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24 January 2018 I had asked a similar question some days back but there are some major DIFFERENCES in this one – especially in the amount involved and that my brother-in-law has salary income.

From my tax paid income, I want to gift Rs 4.5 Lakhs (450000/-) by CHEQUE to my brother-in-law i.e. husband of my sister by blood (‘sagi bahan ka pati’ in hindi). My brother-in-law also has Taxable Salary Income this financial year.

1. Is it correct that he does not have to pay any tax on the Rs 4.5 Lakhs I gift ?
2. Will a gift deed be needed ?
3. Will he have to show the Rs 4.5 Lakhs gift in his Income Tax Return ?
4. If he invests the money in fixed deposits or share trading this financial year, will the interest on the fixed deposit or profit from share trading be treated as his income or as my income (clubbing?) ? and next financial year ?

Z (Expert)
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25 January 2018 1. Is it correct that he does not have to pay any tax on the Rs 4.5 Lakhs I gift ?

Gifts from relatives are not taxable and for the purposes of S.56(2)(x) relatives includes spouse of sister.
[As per explanation to the said subsection,"relative" means,—

(i) in case of an individual—

(A) spouse of the individual;

(B) brother or sister of the individual;

(C) brother or sister of the spouse of the individual;

(D) brother or sister of either of the parents of the individual;

(E) any lineal ascendant or descendant of the individual;

(F) any lineal ascendant or descendant of the spouse of the individual;

(G) spouse of the person referred to in items (B) to (F);

2. Will a gift deed be needed ?
I always recommend it. Exonerate yourself from any fear and tension.

3. Will he have to show the Rs 4.5 Lakhs gift in his Income Tax Return ?
It is pertinent to note that the income from such gift is not chargeable to tax.
We also have the concept of exempted income, which are the incomes which are chargeable to tax but are made exempted for the tax purposes (few exception prevails). In this case there is no charge of tax and hence is not an exempted income and hence, as such not required to be disclosed. However, non disclosure may raise nuisance in future and hence it is recommended to show it as exempted income. Of Course, there is other way round, i.e., do not disclose it now but provide it details when the exchequer asks you about this income. But, it is much easier to show it in return and this is what experts would recommend. My advice is also to disclose this as exempted income. S.292B helps the assessee in this case.

4. If he invests the money in fixed deposits or share trading this financial year, will the interest on the fixed deposit or profit from share trading be treated as his income or as my income (clubbing?) ? and next financial year ?

Clubbing provisions are not attracted in this case, unless the income from such assets is for the immediate or deferred benefit the donor's spouse or donors sons wife.