Skip to content

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

Mr. Ramesh Iyer, aged 45, is a resident individual who is a member of a Hindu Undivided Family (HUF) in which he is the Karta. He gifts Rs 5,00,000 to his wife, who invests it in a fixed deposit earning Rs 40,000 interest. Under the clubbing provisions, how is the interest taxed?

The Rs 40,000 interest is taxed in Mr. Iyer's hands because income from assets transferred to a spouse without adequate consideration is clubbed with the transferor's income. The gift between spouses is not taxed, but the income arising from the gifted money is clubbed.

  1. ATaxed in the hands of the wife as she is the legal owner
  2. BTaxed in the hands of Mr. Iyer, as income from assets transferred to the spouse without adequate consideration is clubbed with the transferorCorrect
  3. CTaxed in the HUF's hands
  4. DExempt as the gift between spouses is tax-free

Explanation

Income arising to a spouse from assets transferred by the individual without adequate consideration is clubbed with the transferor's income. The gift itself is exempt, but the income from it is not. The wife's ownership does not prevent clubbing.

Did you get it right without looking?

One question tells you little. A timed set on Tax Provisions for Special Cases shows your real accuracy, how long you take and where you lose marks.

Practise Tax Provisions for Special CasesFree diagnostic mock

More Tax Provisions for Special Cases questions