If I gift some money to my wife out of my income, can I deduct it from my taxable income? What are the other tax implications of such transaction?
Gifting money to spouse is treated as application of income and not expenditure incurred to earn income. One can claim additional deduction of Rs. 50,000 per annum, under Section 80CCD (1B) over and above the Rs 1.5 lakh limit towards NPS contribution. Home loan rebate available to HUF, too
If I gift some money to my wife out of my income, can I deduct it from my taxable income? What are the other tax implications of such transaction?
Answer: You cannot claim any tax benefits in respect of money gifted by you to your wife out of your income. You will have to pay full tax on your income, because gifting of money, out of your income, is treated as application of income and not an expenditure incurred to earn the income.
The value of the gift made by you will not be taxable in the hand of your wife, as gifts between spouses are exempt under Section 56(2) of the Income-tax Act, 1961. Do note that in case your wife invests the money gifted by you, any income arising on such investment will be clubbed to your income.
Also note that the clubbing provisions will apply for the income on the asset gifted as well as converted into any other asset. However, the clubbing provisions do not apply to the income on income already clubbed and invested by your wife. Since keeping track of the income made by your wife, year after year, from the assets transferred is a very tedious process and has to be done for as long as the marriage subsists, and since no tax benefits will accrue to you, I will advise you not to carry out such transaction and increase complications.
My contributions towards National Pension System (NPS), Public Provident Fund (PPF) and children’s tuition fee together comes to about Rs 1.6 lakh. Will a further online contribution of Rs 50,000 in NPS be exempt under Section 80CCD (1B)?
You are eligible to claim deduction for contributions made to NPS under Section 80CCD (1) of the Income-tax Act, 1961 subject to the overall cap of Rs 1.5 lakh per annum permitted for specified investments or expenses under sections 80C, 80CCCand 80 CCD(1). You can also claim an additional and exclusive deduction over and above the Rs 1.5 lakh limit towards the NPS contribution made by you up to Rs. 50,000 per annum, under section 80CCD (1B) of the Act, and for which you need to contribute only Rs. 40,000, as the excess contribution included in Rs. 1.60 lakh can be considered for section 80CCD (1B).
Is the home loan rebate available to Hindu Undivided Family (HUF), too, or is it only for individuals under the Income-tax Act, 1961?
Two tax benefits are available for home loans under the income tax laws.
The first is under Section 80C for repayment of home loan taken from specified institutions, such as bank, housing finance company, local body, public company (your employer). This benefit is available only to an Individual and an HUF for a residential house property, and that too, after construction is completed and possession is taken. This is available within the limit of Rs. 1.5 lakh, including Employees’ Provident Fund, PPF, life insurance premiums, equity-linked savings schemes (ELSS) and so on.
The other benefit which is available is for interest paid on money borrowed from any person including your friends and relative for purchase repairs construction etc. of any property, and not necessarily a residential house property. This deduction is available for all the tax payers, including HUF.
The author is a tax and investment expert
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