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Aug 27Liked by KBS Sidhu

As per IT rules

*Gifts from specified relatives are exempted, regardless of the amount received. These relatives are spouse, father, mother, brother and sister. They also include any lineal ascendant or descendant of the individual or his spouse as well as brother/sister of the spouse. However, note that even though the gift itself is exempt in the hands of the recipient, the income generated from the gift from relative may be taxable under the clubbing of income provisions of the Income Tax Act. For example, if Mr. A gifts Rs. 10 Lakh to his wife, the same would not be added to the income of his wife. However, if his wife creates an FD from the same and earns interest, the interest would be added to the income of the husband.*

Can someone clarify this query.....

As per above rule, father can gift money to son without any limit or tax liability.

Also son can gift money to mother without any limit or tax liability/ interest income from gifted money.

But if Husband gives gift (money) to wife, interest income from gifted money is clubbed with husband's income.

Is there any violation/ tax liability if father gives regular money as gift to son and the son gives regular money as gift to mother ?

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Now to answer your specific question, while this indirect or devious method would not attract clubbing of income, what I would suggest is that there should not be one-to-one correspondence.

In other words, when the father gifts to the major son, there should be a reasonable delay of at least a few weeks or months, or better still the gift to be made by the son to the mother from a different bank account. The amount may not also necessarily be exactly the same. This will avoid any red flags, which,of course, can be resolved in scrutiny proceedings, but that is a long-process.

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As regards the gifts from the specified relatives, of course, they do not get added to the income of the donee or the acceptor. In case the gift comes from anyone else, except on a few exempted occasions like gifts on the occasion of marriage, the same are directly added to the income of the recipient..

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Why I specifically recommended gifts to go directly to the PPF account of the minor is that since the interest income is itself is totally exempt from income tax, this does not get added to the income of either of the two parents.

When the minor attains majority, the accumulated corpus, including the interest accrued over a period of 18 years is his white capital to begin his life or utilise for higher education, et cetera.

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I don’t claim to be an expert, but all I can say is that in case of minors, the income accruing from the cash/ cheque gift is added to that of the father or the mother, whoever is in the larger Tax bracket.

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…….great guidance please..!!

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