Gift given by sister, spouse, daughter is tax free

Dec 28 2008, 21:45 IST
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SummaryI am a retired person, 69 years of age with no source of income except interest on a few small FDs. Can my daughter give me a gift or an interest-free loan?

I am a retired person, 69 years of age with no source of income except interest on a few small FDs. Can my daughter give me a gift or an interest-free loan? Could you kindly explain the exact procedure acceptable to the tax authorities and her employer.

—C K Saksena

As per the Income Tax Act, any gift given by a daughter to her father would be fully tax-free. Note that there is no tax deduction on the gift per se. To put it differently, the gift will be made by your daughter from her post- tax income. However, the gift transaction will be tax-free for both of you. As far as the procedure is concerned, a simple note from your daughter stating that she is giving you this gift out of her natural love and affection and your reply accepting the same would suffice. This note should be dated (as on the day of the gift) and kept on record. Her employer has no locus standi on how she applies her post-tax income and hence their acceptance to the gift is not relevant.

I am an earning woman and have given some amount to my brother as loan on interest @ 12% p.a. Now I want to give some money (Rs 4 -5 lakh) as gift to his wife. Will the interest received by her when she invests this gift be treated as income or will it be clubbed with my income for tax purposes? Is it objectionable from an income-tax point of view?

—Renu

There are two legs to the transaction that you propose. The first leg is to determine the tax incidence upon the gift and the second one is whether clubbing would be applicable or not on income from the gifted amount. In this regard, as per Section 56 of the Income Tax Act, the gift received by a person from a spouse’s sister will be tax-free. Secondly, the interest earned by such spouse would not be subject to clubbing. In other words, the interest will be taxable in your brother’s wife’s name only and not in your hands. As long as the gift is made legitimately, routed through normal banking channels, is out of natural love and affection and not as a means of evading tax, the income tax department will not have any objection.

I have 400 sqft flat at Dahisar. After 20 years, I purchased another

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