Dear Forum Members
Mrs.X (women assessee) had made investment in deposits. The interest received by her is being offered for tax every year. Mrs.X is in the 20% tax slab. She has three children. The first child (daughter) became major.
The daughter having attained the age of majority can now avail / enjoy separate basic exemption of Rs.2.00 lacs. In addition the daughter is also eligible to claim exemption upto Rs.1.00 lac under Section 80C provided she make such investments.
As a tax planning measure Mrs.X (mother) gifted Rs.20.00 lacs to her daughter by way of account payee cheque. It shall be noted that Gift from mother received by the daughter is exempted from the purview of tax. The daughter invests the money in deposits and earns interest of about Rs.1.90 lacs. The daughter files her return of income however does not pay any tax because the interest earned by her has not crossed the basic exemption limit of Rs.2.00 lacs available to her. Since the mother is in the 20% slab, the saving of tax for the family is about Rs.39,140/- (including cess).
My query to this forum members is:
Whether the above tax planning measure taken by the mother is legal and allowable under the provisions of the Income Tax Act, 1961. Will the tax authorities look into this as tax evasion instead of tax planning.
Whether any Clubbing provision will be applicable for the mother in respect of the interest earned by the Major Daughter (Note : Interest earned by the daughter from the deposits for which the mother is the source).
I request the forum members to give your views in this regard.
With regards
Muralidharan
CAclubindia
