Gifts Received From Spouse Is Not Treated As Income Under Income Tax Laws

Question: My wife is a homemaker. Can I gift her Rs 10 lakh to invest in tax-free bonds? As the interest received on tax-free bonds is not taxed, I would like to know if it will still be clubbed with my income.

Answer: As per the income tax laws, gifts received by a person are treated as income if the aggregate amount of all the gifts received by him from all sources during the year exceeds Rs 50,000. Then, he is required to pay tax on it. That said, gifts received from certain specified relatives (which also includes spouse) are outside the scope of this provision, and thus, such gifts are not treated as income by the recipient. Hence, the amount gifted by you will not be taxed in her hands.

However, any income which is earned on the gifts so made by a spouse is required to be clubbed with the income of the spouse giving the gift. Hence, the interest from the amount invested by your wife in the bonds will still have to be clubbed in your hands, but the same will be exempt in your hands. If your wife invests the interest so received on these tax-free bonds to earn another income, then such income generated on investment of interest income already clubbed shall not be clubbed in your hands, and shall be taxable in your wife’s hands.

Please note that the clubbing provisions will apply till the marriage subsists, so as and when she invests the redemption proceeds of these bonds, the income earned on such fresh investments will have to be clubbed with your income.
 

Question: Our HUF consisted of my father, who was the karta, my mother, my elder married sister, and I myself. My father has passed away. What is the status of the HUF? In what ratio should all co-owners get the assets? How will the provisions apply if my father made a Will?

Answer: The death of a karta does not automatically result in the dissolution of the HUF. It is not necessary for you to distribute the assets of the HUF. The HUF continues to exist even after the death of the karta; the elder coparcener becomes the karta of the HUF. So, your elder married sister will become karta of the HUF. If all the members of the HUF agree, you can also become the karta.

As far as the implications of your father making a Will is concerned, in addition to his self-acquired assets, a person can bequeath only his share of the HUF assets the way he wants to. Do note that a co-owner is entitled to bequeath only his share of the HUF assets and not all the assets of the HUF. So, if your father made a Will specifying how his share of the HUF assets should be distributed, his share of the HUF assets will be distributed according to his Will. 

However, in case a coparcener dies without making a Will or does not bequeath his share in the HUF assets, a partition of the HUF is deemed to have taken place just before the death of the coparcener, and his share passes on to his legal heirs as per the provisions of the Hindu Succession Act, 1956. So, in case your father did not make any Will in respect of his share in the HUF assets, the same gets carved out of the HUF and is inherited by you, your mother, and your sister equally. Even after carving this out, you can continue with the HUF with an increased share in the assets of the HUF.

This carving out of the share of your father in the HUF assets is treated as a partial partition under the Income Tax laws, which is not recognised by the Income Tax laws. Therefore, the income in respect of the carved-out portion of the HUF assets will continue to be taxed in the hands of the HUF. The other co-owners remain HUF members. However, if you wish to fully partition the HUF after his death, you, your sister, and your mother will each get an equal share of the HUF assets.

The author is a tax and investment expert.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)