Ram.J (Others) (61 Points)
04 August 2018If husband gifts ~20L INR to wife through proper gift deed and wife makes it a fixed deposit, then will there be any liability of the husband to pay tax on the interest generated out of wife's fixed deposit?
Please note that, wife already has a few other fixed deposits and files nill return in ITR.
Kamal Verma
(Financial advisor)
(582 Points)
Replied 04 August 2018
Dear Ram J,
Husband is not liable to pay tax on FDR interest.
Saifullah Khalid
(Autodidact/Curious )
(633 Points)
Replied 04 August 2018
| Originally posted by : Ram.J | ||
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If husband gifts ~20L INR to wife through proper gift deed and wife makes it a fixed deposit, then will there be any liability of the husband to pay tax on the interest generated out of wife's fixed deposit? Please note that, wife already has a few other fixed deposits and files nill return in ITR. |
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(1) Interest generated out of fixed deposit will be clubbed with husbands income .
(2) BUT the genearated interest amount itself will move out of this clubbing provision , meaning that this interest amount when again further invested and any interest/profit generated out of this will not be clubbed back to husbands income .. Ok lets explain this with a practical example >
(1) Husband gifts 20 Lacs .
(2) Wife invests this gifted amount in a FD.
(3) FD generates 160,000 annual interest (assuming 8 % annual interest rate ).
(4) 160,000 will be clubbed with husband`s income .
(5) Wife reinvest this 160,000 back in another instrument/investment .
(6) income generated out of this 160,000 will now form part of wife`s income (no clubbing back to husband`s income).
Above all things applicable when the gift transaction is between spouses BUT not when gifts are between other persons ...
Ashwin Kumar
(168 Points)
Replied 04 August 2018
Ram.J
(Others)
(61 Points)
Replied 04 August 2018
| Originally posted by : Saifullah Khalid | ||
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Originally posted by : Ram.J If husband gifts ~20L INR to wife through proper gift deed and wife makes it a fixed deposit, then will there be any liability of the husband to pay tax on the interest generated out of wife's fixed deposit? Please note that, wife already has a few other fixed deposits and files nill return in ITR. (1) Interest generated out of fixed deposit will be clubbed with husbands income . (2) BUT the genearated interest amount itself will move out of this clubbing provision , meaning that this interest amount when again further invested and any interest/profit generated out of this will not be clubbed back to husbands income .. Ok lets explain this with a practical example > (1) Husband gifts 20 Lacs . (2) Wife invests this gifted amount in a FD. (3) FD generates 160,000 annual interest (assuming 8 % annual interest rate ). (4) 160,000 will be clubbed with husband`s income . (5) Wife reinvest this 160,000 back in another instrument/investment . (6) income generated out of this 160,000 will now form part of wife`s income (no clubbing back to husband`s income). Above all things applicable when the gift transaction is between spouses BUT not when gifts are between other persons ... |
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Do u mean Husband will be liable to pay tax on INR 1,60,000 and wife will be liable to pay tax on the interest generated through the re-investment of INR 1,60,000?
I mean, wife may keep re-investing maturity value & interest of the FD for next 2 years. But, how can husband be relieved from all the taxes generated out of this 20L? Wife is currently nil returning, while husband is in 30% bracket.
Saifullah Khalid
(Autodidact/Curious )
(633 Points)
Replied 04 August 2018
| Originally posted by : Ram.J | ||
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Do u mean Husband will be liable to pay tax on INR 1,60,000 and wife will be liable to pay tax on the interest generated through the re-investment of INR 1,60,000? |
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YES ... 160,000 will be added back to husbands final taxable Income ( due to clubbing provisions of IT act) ... and YES the wife will be liable to pay tax on the interest generated through the re-investment of INR 1,60,000 .
| Originally posted by : Ram.J | ||
I mean, wife may keep re-investing maturity value & interest of the FD for next 2 years. But, how can husband be relieved from all the taxes generated out of this 20L? Wife is currently nil returning, while husband is in 30% bracket. |
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No way to escape from the tax liability on first hand/instance generated income of your gift to wife ... See this is the main/primary reason/logic behind these clubbing provisions of the IT act , just to bar people from escaping taxes through spouse route these clubbing provisions were enacted .....
Ram.J
(Others)
(61 Points)
Replied 04 August 2018
| Originally posted by : Saifullah Khalid | ||
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Originally posted by : Ram.J Do u mean Husband will be liable to pay tax on INR 1,60,000 and wife will be liable to pay tax on the interest generated through the re-investment of INR 1,60,000? YES ... 160,000 will be added back to husbands final taxable Income ( due to clubbing provisions of IT act) ... and YES the wife will be liable to pay tax on the interest generated through the re-investment of INR 1,60,000 . Originally posted by : Ram.J I mean, wife may keep re-investing maturity value & interest of the FD for next 2 years. But, how can husband be relieved from all the taxes generated out of this 20L? Wife is currently nil returning, while husband is in 30% bracket. No way to escape from the tax liability on first hand/instance generated income of your gift to wife ... See this is the main/primary reason/logic behind these clubbing provisions of the IT act , just to bar people from escaping taxes through spouse route these clubbing provisions were enacted ..... |
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Thanks a lot for your explanation. But, will this tax on 1,60,000 needs to be paid by the husband year after year or it is only for the first year? What if the wife buys something (gold/stock/bitcoin) and sells it back? Will the husband still be taxable?
Saifullah Khalid
(Autodidact/Curious )
(633 Points)
Replied 04 August 2018
Till the time your gifted primary funds are generating income , the first hand/instance income will be clubbed with your income... year after year...
Ram.J
(Others)
(61 Points)
Replied 05 August 2018
| Originally posted by : Saifullah Khalid | ||
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Till the time your gifted primary funds are generating income , the first hand/instance income will be clubbed with your income... year after year... | |
Thanks. But, I did not understand, what will happen, if the wife buys something (gold/stock/bitcoin) and sells it back? Will the husband still be taxable?
Saifullah Khalid
(Autodidact/Curious )
(633 Points)
Replied 05 August 2018
| Originally posted by : Ram.J | ||
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Originally posted by : Saifullah Khalid Till the time your gifted primary funds are generating income , the first hand/instance income will be clubbed with your income... year after year... Thanks. But, I did not understand, what will happen, if the wife buys something (gold/stock/bitcoin) and sells it back? Will the husband still be taxable? |
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Buying Gold/Stock etc and reselling will result in short/long term capital gains and will be taxable accordingly .. tax on capital gain arising out of sales of stocks/Gold (which were purchased using husband`s gifted amount) will be clubbed with husband`s income...
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