Tax on gift back

Tax planning 245 views 5 replies

Aditi Jain

CA FINAL

97 Points Joined July 2012

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)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

197103 Points Joined July 2016

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.