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Cash Gift received from a spouse

03 April 2018

cash gift received from spouse of ₹ 48000
what is the tax treatment & whather gift deed is necessary of Income tax act???

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6 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160886 Points)
Replied 03 April 2018

Its tax exempt. But income over it is liable for clubbing provision.

Prepare a confirmation letter of Gift on plain paper with acceptance of the gift amount, and keep in records.

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Girish Aradhya (Audit Officer) (152 Points)
Replied 03 April 2018

its exempt from tax. However, interest earned on such cash gift is taxable in your hand.

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J S BHAVSAR (CONSULTING) (1288 Points)
Replied 23 July 2019

Originally posted by : Girish Aradhya
	its exempt from tax. However, interest earned on such cash gift is taxable in your hand.

If the gift amount was invested in equity shares or equity mutual funds then the capital gains earned on the gift amount are to be taxed in whose hands?

Suresh Thiyagarajan (Student) (3986 Points)
Replied 23 July 2019

1. According to sec 64(1)(iv), income earned by the spouse out of asset(also includes cash) transferred by the individual transferor will be taxable in the hands of the transferor.
2. In the given case, cash was gifted by let's say husband to wife. And with the help of this amount she had purchased a share in the company. Sec 64 was introduced to curb the transfer of income without transfer of asset. Sec 56(2)(x) does not tax gift given to relative and spouse is covered under the definition of relative. It will not be taxed in the hands of the wife in our example.
3. However, purchasing equity shares from the amount gifted by her husband is clearly a transaction to transfer the income and thus sec 64 comes in to operate.
4. Hence, transfer of such shares if results in capital gains tax will be taxed in the hands of the husband (in our example) and dividend income also be clubbed in the hands of husband at the time of receipt of such income.
5. Even though provision were formulated to curb such transactions but establishing that equity shares were actually purchased out of the gifted amount becomes a challenging one. If the same could be established without a reasonable doubt then gains and incomes arising out of such shares will be taxable in the hands of the husband.
Please correct me if the above solution has an alternative view.

J S BHAVSAR (CONSULTING) (1288 Points)
Replied 31 July 2019

Originally posted by : Suresh Thiyagarajan
	1. According to sec 64(1)(iv), income earned by the spouse out of asset(also includes cash) transferred by the individual transferor will be taxable in the hands of the transferor. 2. In the given case, cash was gifted by let's say husband to wife. And with the help of this amount she had purchased a share in the company. Sec 64 was introduced to curb the transfer of income without transfer of asset. Sec 56(2)(x) does not tax gift given to relative and spouse is covered under the definition of relative. It will not be taxed in the hands of the wife in our example. 3. However, purchasing equity shares from the amount gifted by her husband is clearly a transaction to transfer the income and thus sec 64 comes in to operate. 4. Hence, transfer of such shares if results in capital gains tax will be taxed in the hands of the husband (in our example) and dividend income also be clubbed in the hands of husband at the time of receipt of such income. 5. Even though provision were formulated to curb such transactions but establishing that equity shares were actually purchased out of the gifted amount becomes a challenging one. If the same could be established without a reasonable doubt then gains and incomes arising out of such shares will be taxable in the hands of the husband. Please correct me if the above solution has an alternative view.

Thanks, the theory part is perfectly mentioned by you. But how does IT department determine if shares or mutual funds were purchased from the exact cash gift amount from husband to wife?

What if the wife deposits the cash gift in her own PPF Account? PPF Account interest is tax free! Then who should report such interest? Husband should then add PPF interest on cash gift amount to his own PPF interest and then report in ITR?