Gift Received From Husband Not Taxable As Income For Wife Under Income Tax Laws

I have gifted Rs. 4 lakh to my wife who has made a fixed deposit with the bank for three years. My wife is a homemaker and does not have any other income. What will be her tax liability? Would it have made any difference if I had gifted the money to my married daughter?  

Answer: According to the provisions of the income tax laws, any recipient of gift has to pay tax if the aggregate of gifts received during a financial year exceed Rs. 50,000. However, gift received from specified relatives, such as spouse or daughter are not treated as income. Thus, they are fully exempt from income tax without any monetary limit. So, there will be no tax implications on making gifts to either your spouse or your daughter.
 
As far as taxation of income arising from the gifts so made is concerned, in case of gifts made to a spouse, the income is required to be clubbed with your income. But if the gift is made to a major daughter, then whether married or not, the clubbing provisions will not apply, and the interest income will be taxed in her hands. Do note that the clubbing provisions will continue to apply as long as the marriage subsists even when the asset gifted is converted to another asset. The clubbing provision will apply only on the income generated on the asset transferred, but not on the income generated from investments made of income already clubbed. 

I am a non-resident Indian (NRI) and have a portfolio investment scheme (PIS) account with a bank. Is there any provision for tax deduction at source (TDS) at the time of sale of shares held under the non-resident external (NRE) PIS account? I understand that all the income of NRE accounts are exempt. In case TDS is applicable, what will be the rate at which it will be deducted? 

Answer: Your impression that income from NRI PIS accounts is tax-free is not correct. What is exempt for an NRI, is any interest credited in the NRE and foreign currency non-resident (FCNR) deposits with a bank, and not all the incomes, which an NRI earns from India. 

So, all other incomes arising to an NRI from India are taxable in India. The profits which you make on your investment in an NRI PIS account are taxable in India and are subject to TDS. The tax to be deducted on such income would depend on the amount which is taxable. Since PIS is applicable for shares to be purchased and sold on recognised stock exchanges in India, a tax at the rate of 15 per cent will be deducted on profits made if the shares have been held for less than 12 months. In respect of shares held for more than 12 months, which are treated as long-term capital gains, TDS will be made at the rate 10 per cent on such profits. In respect of dividend income, the companies will deduct tax at a flat rate of 20 per cent.

The author is a tax and investment expert

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