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

Mr. Rao, a salaried person, gifts Rs 5,00,000 to his wife, who invests it in a fixed deposit and earns Rs 40,000 interest in the year. Under the income clubbing provisions, what is the tax treatment of this interest?

The whole Rs 40,000 interest is clubbed in Mr. Rao's income. Income arising from money gifted to a spouse without adequate consideration is taxed in the hands of the transferor, even though the gift itself is not taxable.

  1. ARs 40,000 is clubbed in Mr. Rao's income as income from other sourcesCorrect
  2. BRs 40,000 is taxed in the wife's hands only
  3. CHalf of the interest is clubbed with Mr. Rao's income
  4. DRs 40,000 is exempt because the gift between spouses is exempt

Explanation

Income from assets transferred by an individual to the spouse without adequate consideration is clubbed in the transferor's income. The gift itself is not taxed, but the FD interest of Rs 40,000 is added to Mr. Rao's income. Partial clubbing does not apply here because the full income arises from the transferred asset.

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