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Gift/lending amount to mother in law to save tax

13 October 2019

sir ,recently my wife passed away and i got her insurance amount about 50 lakhs. my 2 kids are minor and i dont have parents or brother. i am doctor and in 30 % tax bracket. to reduce tax burden for 50 lakhs can i transfer the amount in name of my mother-in-law (my deseased wife mother) and she does fixed deposit and pay necessary taxes .need info sir

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5 Replies

Koushik Das (Self employed) (40 Points)
Replied 13 October 2019

Dear Sir, insurance claim received by the nominee on demise of the insured is exempt from income tax under section 10(10D). Therefore, there is no need to gift such amount to avoid tax. However, necessey disclosure may be required in the Income Tax Return filed for the previous year in which such sum has been received.

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Suresh Thiyagarajan (Student) (3986 Points)
Replied 14 October 2019

1. As rightly explained above, insurance compensation received on account of the death of an individual will not be subject to tax in the hands of the recipient by virtue of sec 10(10D) of the act.
2. However, this amount will not be subject to tax in your hands. But if you want to transfer this amount to your mother in law's account, then gift deed can be executed and by that way income arising out of Rs. 50 lakhs deposit will be taxable in her hands.
3. Mother in law will be considered as relative for the purpose of sec 56(2)(x), and any gift in the form of cash or immovable property provided to her will not be subject to tax.
4. That way, if your mother in law is a senior citizen then more benefits are available from the Income-tax point of view. Execute a gift deed for the transfer of Rs. 50 lakhs.
Please correct me if the above solution has an alternative view.

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Sk Hemanth (3 Points)
Replied 14 October 2019

sir i have disclosed it in income tax under section 10(10D). now my issue is 50 lakh transfer to mother in law to do fixed deposit ,by doing so my it returns will be reduced by one lakh per year and fd will generate 0.5 % more interest on the amount after she pays required taxes as per her overall income including fd amount. so overall gains for me will be 1,00,000 to 1.20,000 per year. so m keen to transfer it into my mother in law account. i want income tax related issues that may arise n solution sir. (so gift deed or loan without interest)

Koushik Das (Self employed) (40 Points)
Replied 14 October 2019

As per my view, you can execute a gift deed in the name of your mother in law as suggested by Suresh Thiyagaranjan Ji. It will attract lower tax rate in the hand of your mother in law and thus less income tax will required to be paid on the future interest income that will arise from FDR of Rs. 50 Lac.

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Kapadia Pravin (17264 Points)
Replied 16 October 2019

Dr Hemanth You have rightly decided to give a gift of 50 lakhs to your mother-in-law post receipt by you of insurance money under 10(10D) to the tune of 50 lakhs.

Gift from/to relative is not subject to tax. Do transfer 50 lakhs by way cheque or digital mode.

This will surely result in huge gain of nearly a lakh of rupees. (as you are in 30% tax slab)

No issues from tax point of view necoz you have source of receipt of gift amount.