Query on clubbing of income

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This discussion explores the 'clubbing of income' provisions in Indian tax law, specifically concerning gifts. The initial query asks if gifting money to a major son, who then gifts some to his mother (the original gifter's wife), could be considered an indirect gift from the father to the wife, triggering clubbing provisions. While direct gifts to a major son are generally taxed in his hands, the cross-gift scenario is complex. The advice suggests that indirect or cross-transfers can attract clubbing provisions, especially if done within a 'short period of time', though this timeframe is subjective and depends on the Assessing Officer.

Ram

Ram (Querist)

25 December 2023 As I understand, If I gift some money, e.g. Rs 1,00,000 to my major son, any income generated on this money will be taxed in the hands of my son.

As my son has his other sources of income, namely, salary and income from investments, he might gift some money e.g. Rs 50,000 to his mother, i.e. my wife.

My question is whether these two transactions together might be seen as indirect gift from me to my wife and will these attract the clubbing of income provisions?

Are there any suggestions on how to safely carry out such gifting transactions so that we are not inadvertently violating any income tax rules.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

25 December 2023 Yes.
The clubbing provisions will apply for indirect transfers or cross transfers as well.

Ram

Ram (Querist)

25 December 2023 Dear Sir, thanks a lot for your prompt response. I need a few further clarifications.

Under what conditions do such transfers count as indirect transfers or cross transfers for which clubbing provisions would apply? Is there a time window, like within a financial year?

E.g. I may have sent money multiple times to my major son during his higher studies when he did not have his own income. Now that he is earning, he might wish to gift money to his mother.

What are the rules regarding such transfers?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

25 December 2023 In such a case given above clubbing provisions not applicable.

Cross transfer within short period of time attract clubbing provisions.

Ram

Ram (Querist)

25 December 2023 Ok sir. I got the point.

Is it possible to define "within short period of time" for a lay person?
Or is it subjective or dependent on the assessing officer?
Thanks

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

25 December 2023 It's depends on the AO.

Ram

Ram (Querist)

25 December 2023 Marking this query as resolved. Thanks.

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