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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Tax Provisions for Special Cases

Mr. Iyer, a resident individual, gifts Rs 10 lakh to his wife, who invests it in a fixed deposit and earns Rs 70,000 interest in the year. How is this interest taxed?

The interest is taxed in Mr. Iyer's hands. When an asset is transferred to a spouse without adequate consideration, income from that asset is clubbed with the transferor's income, even though the gift itself is not taxable.

  1. ATaxed in Mr. Iyer's hands under the clubbing provisionsCorrect
  2. BTaxed in the wife's hands only, since the interest is her income
  3. CExempt, because gifts between spouses are tax-free
  4. DSplit equally between husband and wife

Explanation

Where an individual transfers an asset to the spouse without adequate consideration, income arising from that asset is clubbed with the transferor's income. The gift itself is not taxable, but the FD interest of Rs 70,000 is added to Mr. Iyer's income. Taxing it only in the wife's hands ignores clubbing.

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