Tax on gift back

Tax planning 340 views 5 replies

Hi Experts ,

I have question on Gift Tax

Since there is no Tax on Gift if it is made to relatives.

If Mr. X has gifted an amount from his income which is already taxed say Rs.1,00,000 to his 2 sons MR. Y and Z (Both above 18 and having no other income) there will be no tax.

Mr. Y and Z deposited them in FD and earned interest.

Now if after 1 year Mr. Y and Z Gift back that amount (Rs. 1,10,000 with interest) to Mr. X(Father) then also No Gift Tax.

Will above transaction be an example of Tax Planning or will IT Dept will Tax Mr. X on ground of receiving back gift with allegation of evading tax?

 

Kindly Reply ASAP

 

Thank You

Replies (5)

There is no tax evading. The interest part is assessed in the hands of both son.

Transaction is perfectly legal. However, in such arrangements, there is always a residual risk of litigation given the fact that ITD will try to question it irrespective of the fact that transaction does not attract tax as per provisions of the ITA. 

Thank You Sir for you expert view on question;

I also thought legally there is no issue but i had doubt.

I would like a bit more clarification would income tax dept. not say that purpose of gift was to reduce liability of Mr. X hence Tax evasion?

Any past case laws in respect of such transaction which can e given in case of litigation?


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