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Gift money and clubbing

Learn Law (Student) (70 Points)

26 January 2014

Wife has some 1L from gift from her parents. Husband also transferred 2L to her account for investing in business. Both already have PAN and separate IT return filings. Business went in loss and now amount left is 1L. What is tax implication here? Can Husband show short term capital/business loss as per clubbing rule and keep 1L of her as is?

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5 Replies

SamTK (Chartered Accountant) (194 Points)
Replied 26 January 2014

Gift received from her parents is not taxable. Therefore, gain/loss is purely assessed in the gift receiver's return.

Clubbing provisions will be attracted for the husband. Losses are included within the definition of "income" with regard to the provisions of clubbing of income.

However, how can you prove that the 2,00,000 Rs/- lost in the business is directly related to the gift received from the husband? While I can understand you're methodology of computation benefits the assessee, you'd still need to prove how you segregated the funds received as gifts and used for the investment. If you cannot segregate the funds received used for the investment, I'd suggest you apportion them between the husband and wife.

Learn Law (Student) (70 Points)
Replied 28 January 2014

No, there is no ways to proove that the 2,00,000 Rs/- lost in the business is directly related to the gift received from the husband.

So, apportion them between the husband and wife means?

Total Loss 2L

Husbands Loss = 1.34L

Wife's Loss = 66K

Mihir (Wealth Manager) (5293 Points)
Replied 28 January 2014

If the business is carried on by the wife using her own skills and professional qualification/experience, I don't think that clubbing provision will apply, whether the business makes profit or loss.

AVTAR SINGH (Expert) (1873 Points)
Replied 28 January 2014

Negative income is also income. Under the Income Tax Act income does not mean positive income only. The term income includes negative income or loss also. Therefore clubbing provisions will be attracted in case of loss. But the loss can not be identified with investment of Rs.200,000 separately therefore two-third of loss will be considered in the husband's income and remaining one-thied in wife's income.

SamTK (Chartered Accountant) (194 Points)
Replied 28 January 2014

Originally posted by : Learn Law
	No, there is no ways to proove that the 2,00,000 Rs/- lost in the business is directly related to the gift received from the husband. So, apportion them between the husband and wife means? Total Loss 2L Husbands Loss = 1.34L Wife's Loss = 66K

So the wife put in 3,00,000Rs/- altogether in the business. Breaking that down, 2/3 of the money, i.e. 2,00,000Rs/- was received from the husband on which clubbing of income is applicable. The business incurred a loss of 2,00,000Rs/-, therefore, 2/3 of the loss is attributable to the husband, while 1/3 to the wife.

So yes, the loss you've quoted sounds about right.