Interest earned on income gifted to family member

principal is not taxable, but interest will be clubbed to your hands.

I have a differ opion about gift or transfer to Father's Savings Bank account. As the Fixed Deposit of Rs. 4 lakhs is gifted to father, it will be taxable in the hands of receipient (Father) under Income from Other Sources since it is exceeded Rs.50000/-. 

For better clarity refer the below provisions:

Applicability of Gift Tax under section 56(2) of Income Tax Act, 1961

Cash gifts up to Rs. 50,000 were tax free and any gifts in excess of Rs. 50,000 were subject to tax entirely. The new laws state that gifts, whether in cash or kind, which exceed Rs. 50,000 will be taxed as ‘income from other sources’ u/s 56 (2) of the Income Tax Act in the hands of the recipient. This provision also applies to movable or immovable property that has been purchased for inadequate payment.

What are the exceptions for Gift Taxes?

This is what you were waiting for, weren’t you? To address this issue, let’s look at certain ‘exceptions’ that prevail under the new law.

For starters, this rule will not apply if you have received a gift from a relative. For the purpose of this law, a relative is:

1. Your spouse
2. Your brother or sister
3. Your spouse’s brother and sister
4. Your spouse’s parent’s brother or sister
5. Your linear ascendant or descendant
6. Your spouse’s liner ascendant or descendant
7. Spouses of persons referred in (e) and (f)

Secondly, you are looking at tax free gifts if they have been given to you in any of these occasions:

  * On your marriage

• Inheritance via will
• Gift from local authority
• Gift from registered public charitable trust/institution
• Gift from a fund, trust, university or any institution referred to in the relevant section

Hi Thanks for the reply @ Subhash and also Sharma.

I am still not clear about my question, should I only transfer 50k to my father or I can transfer 4lakh to his account ?

As per this new rule explained by Subhash..

In both cases what will be his taxable income for coming years (Principal, Interest or both) ?

What will be my liability part from that income (4lakh) as taxable (Principal, Interest or both) ?

Please clarify, again Thanks.