Any Income On Assets Gifted By You To Spouse Will Be Added To Your Income
I recently retired from service and received around Rs. 3 crore as retirement benefits. In order to reduce my tax liability, I want to give some amount to my wife and invest the same as bank fixed deposits in her name. She does not have any income. How much money can I give her as a gift? What are the tax implications of this transaction?
Under Section 56(2) of the Income-tax Act, 1961 gift received up to Rs. 50,000 in aggregate in a financial year from all the sources are exempt in a year.
However, in case the aggregate amount of all the gifts from all the person in a year exceeds Rs. 50,000, the entire amount becomes taxable. However, gifts received from certain specified relatives, such as brothers, sisters, parents, spouse, sons, daughters, brother-in-law etc. are not to be treated as income, and are thus outside the scope of this provision.
So, any gift made by you to your wife will be fully tax exempt in her hand and there is no limit to the amount you want to gift her.
However, under provisions of Section 64 of the Act, any income arising from the assets gifted by you shall be added to your income year after year till the marriage subsists. The clubbing will continue to apply even if the asset is converted from one form to another. Do note that the clubbing provisions apply only on the income accruing to the assets transferred and not on the interest received on investment made from income already clubbed.
I had purchased a single premium life insurance policy from the Life Insurance Corporation (LIC) of India. LIC has deducted tax at source (TDS) at the time of maturity. Will the entire maturity amount be taxable, or the amount which I have invested in 2006 has been deducted from the maturity amount?
According to Section 194AD of the Income-tax Act, 1961, since tax is deducted on the income component comprised in the money paid in respect of any payment made by the life insurance company, the entire maturity proceeds cannot be taxed. Only the difference between the premium paid and money received can be taxed.
An insurance policy can be treated as a capital asset and the same can be logically inferred by taxation provisions of Section 112A in respect of Unit-linked insurance plans (Ulips) where the premium paid exceeds Rs. 2.50 lakh during a year. So you can avail benefit of indexation on such premiums paid for those premiums paid beyond three years of maturity.
I am a businessman having taxable income. I also get some money as my share from the family agricultural income from my ancestral land every year. Do I have to disclose this in my income tax return (ITR)? Will it increase my tax liability?
If the share of agricultural income received by you is originally the income of the Hindu Undivided Family (HUF) to which you belong, then it represents distribution of the income by the HUF to its members, which is exempt under Section 10 of the Income-tax Act, 1961. Thus, you are not required to add it to your income. However, the same needs to be disclosed in the schedule exempt income (EI) of your ITR for complete compliance.
However, in case the agricultural income represents the income from the property jointly owned by you with your family members, it represents your income and the same needs to be included in your income for rate purpose.
Even though the agricultural income is fully exempt under Section 10(1), it has to be included in your total income for the purpose of taxation. This inclusion of agricultural income with your regular income will effectively increase the effective average rate of tax applicable on your regular taxable income of Rs. 7 lakh. In both the situations, the same should be disclosed in the EI schedule.
The author is a tax and investment expert
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