Clubbing income

Tax planning 1064 views 5 replies

Ganesh

24 Points Joined June 2012

Dear Members,

I have two questions on income arising from Gift to spouse:

1) Let us say a husband gifts 10 lakhs to his wife .....

1) .... on 30 of Mar 2011 and she deposits the same in bank FD. I understand that the income arising from this would be clubbed to the income of the husband (assuming he earns more) for 2011. The income in this case is for ONLY 1 day in the fiscal year of the gifting.

So does this mean that the income for the remaining period of the FD (which would spill over to FY 2012) need not be clubbed with that of the husband?

2) ....and she invests the same in MF, and does not withdraw anything in the same fiscal year (Y1) as it was gifted. Hence I presume there is no clubbing required as there was no income in the year of gifting (Y1).

In the subsequent year (Y2), after one year completed in the MF investment, she withdraws and I suppose there is no capital gains on this. She deposits the same in bank FD attracting tax at the end of Y2.

In this case does the husband have to pay any tax for y1? Does he have to pay in y2 OR is it tax onus on the wife?

Would be grateful if someone could clarify. Essentially the question is does clubbing of income apply ONLY to income generated in the year of gifting?

Thanks,

Replies (5)

Mayank Mall

CA-Final

316 Points Joined July 2011

What I Know is clubbing of Income is done if the Income is directed to some relative which is not so required, yet saves tax burden. In your case too.....your wife's income in any year will be clubbed with your income as the investment can be done by you, and is an unnecessary transfer. Your wife will not be liable for any tax.

In Y1...you eaned 1 day interest, it will be clubbed with your income as in Y1.

In Y2...you earned 365 day interest, it will be clubbed with your income as in Y2.

Conclusion....Clubbing of Income doesn't apply just and only to the year of gifting/transfer but on the consequent years too.

Monith Agarwal

MR.

117 Points Joined July 2011

i will agree with mayank .

Prateek Agarwal

Sr. Executive - Finance & Accounts

1732 Points Joined February 2011

in case of gifting, clubbing is not only restricted to year of gifting. It is attracted on income generated out of gifted asset. Hence, the contention of Mayank is correct.

Deepak Parsai

Future CA

623 Points Joined December 2008

I am also agree with above answers and wanna add one thing more that suppose in place of fd if she takes Nsc then we also calculate interest each year and club normal interest each year on accrual basis, so as per this process I think income from mutual fund should also find out and clubbed each year? But practically this calculation is very hard,then how to do? Plz answer..

anshul

68 Points Joined July 2012

I believe Mayank and everyone else above have rightly pointed out that clubbing will apply for FD.

But if the gifted amount was invested in equity Mutual Funds, and the holding period is above 365 days, then clubbing will not apply (as tax on LTCG for equity MF is 0). And the gains if any on redemption will be treated as the income of wife.

The rational is - if the money was not gifted, and the same was invested by husband in equity MF, the tax on LTCG for him would also have been zero.