GIFT TAX & TAXATION ISSUE'S

[Neeloy Kumar Bakshi]

Sir / Madam,

From the book, '51 Tips for Saving Income Tax' by R N Lakhotia 7th Edition 2012, under chapter 15, one can save substantial amount of income tax by making gifts to one's own adult children (provision under Income Tax Act, 1961).

The amount which you give as a gift to your own adult child becomes his/her own money and any subsequent income arising thereon is treated as their income which is not clubbed with you own income.

Q1. Is there any limit on the amount you can gift to your own son/daughter?

As of now, I have Fixed Deposits (in the joint name of myself and my wife) whose maturity is in April 2015 and which have been declared under my assets in my Income Tax Returns. I want to save tax on these deposits by gifting them to my daughter [who is a student pursuing higher studies Abroad] who has a PAN card.

Q2. To save Tax in the financial year 2013-2014, I want to gift the above mentioned deposits to my daughter, say Rs. 15 Lakhs. Now for this, do I have to break my Fixed Deposit and make a Fresh Deposit in my Daughter's name or just by making a Gift deed, informing the bank and filing IT Returns on behalf of my daughter and declaring the gift received in her IT Return, this can be done?

Can you please clearly advise, the best possible solution for my case?

Q3. If she work's abroad (where she will have to pay tax) will her income in India & Abroad be clubbed while filing IT Return's? Regard's.

[CAGOPALJI AGRAWAL]

1. There is no limit for gift to adult son or daughter.

2. Of course, the safer route would be to premature FDR and make the gift.

3. Even she is non resident, she would have to pay tax on income accrued or arising in India but if the total income is below taxable limit,then no tax liability.

AI Summary

Gifts to adult children: no statutory limit; Indian sourced income is taxable to the recipient even if nonresident. Gifts to an adult son or daughter are not subject to a statutory monetary limit; once transferred, income from the gifted assets is the recipient's and not clubbed with the donor's income. For bank fixed deposits declared by the donor, a safer method is premature encashment and re deposit or transfer in the donee's name rather than relying solely on a gift deed and bank notice. A nonresident donee must declare and pay Indian tax on income accruing or arising in India, although no Indian tax is payable if total Indian taxable income is below the exemption threshold.