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

Mrs. Sunita Rao receives a one-time gift of Rs 5,00,000 from her husband and invests it in a fixed deposit, earning Rs 40,000 interest during the year. Her husband's income remains his own. As per the clubbing provisions, how is the interest of Rs 40,000 taxed?

The Rs 40,000 interest is taxed in the husband's hands. Income from an asset transferred to a spouse without adequate consideration is clubbed with the transferor's income, so the wife's investment of the gifted money does not make the interest her own taxable income.

  1. ATaxed in Mrs. Rao's hands, since a gift to a spouse is a valid transfer
  2. BTaxed in the husband's hands, as income from assets transferred to a spouse without adequate consideration is clubbed with the transferor's incomeCorrect
  3. CTaxed equally, Rs 20,000 each
  4. DExempt, being interest on a gifted amount

Explanation

Under the clubbing provisions, income arising from assets transferred by an individual to his spouse without adequate consideration is included in the transferor's income. So the Rs 40,000 interest is added to the husband's total income. Taxing it in the wife's hands ignores the clubbing rule, and no equal split or exemption applies.

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