Clubbing provisions under income tax

Last Updated: Thu, Feb 19, 2009 07:28 hrs

My NRI son wants to give a gift of Rs 20 lakh to his mother who is housewife. She wants to put this money in FD. Will the interest be clubbed with my income for tax purposes?

--- Dev Mahajan

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Your wife's income from the fixed deposit would have been clubbed (included in your income) for tax purposes if you had given her the gift.

But in this case, it is your son who is giving her the gift and hence clubbing provisions will not be attracted.

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What are the main pros & cons of a NRI based in London acquiring dual (UK & Indian) citizenship from the point of view of taxation and acquiring/selling flats belonging to the NRI in India?

--- PSGohil

When one acquires dual citizenship, it essentially means that such person is giving up exclusive Indian citizenship. Consequently, such person transitions into a PIO (Person of Indian Origin) from being an NRI (Non Resident Indian). As far as India based tax is concerned, there is no difference in the tax incidence on both NRIs and PIOs. As far as selling flats is concerned, note that a PIO cannot sell property to another NRI or PIO, he has to necessarily sell to an NRI only.

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My husband is retiring from his Central Govt job soon. Out of the terminal benefits that he will get, he wants to gift a certain amount to my son, who, at present, is doing his MS in the US. Can I put that cheque into joint account of myself and my son and then put it in a fixed deposit in his name and instruct the bank to deposit the interest into the joint account. Will such a structure circumvent any clubbing provisions for income tax purpose? Kindly advice

--- vijayalakshmi

Since your son is studying abroad, he will be an NRI as per FEMA. It would be advisable to open an NRO account in his name with you as a second / joint holder. An FD may be purchased in his name by debiting such NRO account. As you have yourself pointed out, the interest from this FD may be credited to this NRO account.

This way, the transaction would be considered as a gift from your husband to his son and thus escape clubbing provisions. This is of course assuming your son is above 18 years of age and not a minor.

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