Complex query on gifting and nri returns

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 May 2011 Mrs A - Foreign Citizen and Non Resident as per sec 6 of Income tax act.

She has2.5 crore in Nre Fixed Deposits bank account. as she is non resident interest on above2.5 crore is exempt from tax u/s 10 (4).

Interest on Nre Fixed Deposit = 3.5%

Interest on Regular Fixed DepositAccount = 9.25%

As she is losing quite high interest on nre account she decided to convert the amount in ordinaryaccount and gain extra interest @9.25%. but she will come under 30% tax bracket.

She decided to distribute the amount to her husband, son, daughter in law @ 50 lacs each. all are foreign citizens and non residents.

This distribution is done in their nre accounts respectively and in foreign currency.

All 4 obtain pan, convert inand gain interest on normalaccount @ 9.25%.

They file returns as nri and pay taxes after deduction of tds or obtain refund respectively.

The main question here is

1) is the gift section applicable here?? can she gift say 50 lacs each to son , daughter in law and husband??? are the clubbing sections applicable here???

please note that the amount is distributed in nre account in foreign currency and the amount was transferred from overseas but is presently held in fd account of mrs a.

If i start 4 assessess is

2) the income tax goin to ask where the 50 lacs came from?

If i show income tax that the amount came from nre account. will they investigate further?

Is is necessary to show that the amount originated from Mrs A?

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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25 May 2011 1. income from amount gifted to spouse and son's wife will be subject to clubbing under section 64 however no tax consequences will be there under section 56
2. there will be no clubbing so far as son is concerned and no tax consequences under section 56
3. the AO can ask for source of 50 lakhs and if not satisfied can tax entire sum under section 68

CA MANOJ GUPTA
JODHPUR
09828510543

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