I want to gift a large sum to my senior citizen parents so that they can invest in long-term, high-yield FDs. Since they are in a lower tax slab, this could reduce our family’s overall tax burden. I’d like to use the interest earned thus for my personal expenses. Can I open a joint account with them and use the interest without any tax issues? Is this legal? Do I need to execute a gift deed each year for the interest to be treated as a gift from my parents?
Amit Maheshwari Tax Partner, AKM Global: As per Section 56(2)(x) of the Income Tax Act, 1961, any amount received from a relative without consideration is exempt from tax. Since parents fall under the definition of “relatives,” the amount you gift them will not be taxable. The interest earned on the FDs will be taxed as “Income from Other Sources” in your parents’ names, based on their applicable slab rates. You can open a joint account with your parents; typically, the first holder is treated as the primary account holder, and the interest income is taxed accordingly. If your parents transfer the interest income back to you, it will again be tax-exempt under Section 56(2) (x), and you are free to use it as you wish. However, for high-value transactions, the Income Tax department may raise queries regarding the source of funds and taxability of interest income. Banks report such transactions under the Statement of Financial Transactions (SFT), which may trigger scrutiny. Hence, you need to maintain proper documentation and records pertaining to this. Additionally, it is not mandatory to execute a gift deed each year when your parents transfer the interest income to you, but it is generally recommended.
I earn Rs 7.5 lakh annually from passive sources, such as rent, interest and dividend, while my wife earns Rs 3 lakh from similar sources. Both of us also have Rs 6 lakh each in short-term capital gains from equities. What would be our respective tax liabilities? Since her total income is less than Rs 12 lakh, would she still be liable to pay tax? Additionally, would it be tax-efficient to conduct more trading through her account?
Amit Maheshwari, Tax Partner, AKM Global: Based on the details provided, your total income for financial year 2024-25 amounts to Rs 13.5 lakh, comprising Rs 7.5 lakh in passive income and Rs 6 lakh in short-term capital gains (STCG). It is also important to highlight that the rebate under Section 87A of the Income Tax Act is available only if the total income does not exceed Rs 7 lakh, and capital gains are specifically excluded from this benefit. Hence, your passive income will be taxed according to the applicable slab rates. The STCG, however, will be subject to a concessional tax rate of 15% if the underlying transactions were executed before 23 July 2024, and 20% if these were executed on or after this date. In the case of your wife, her passive income of Rs 3 lakh falls well within the basic exemption limit and is, therefore, not subject to tax. Her STCG of Rs 6 lakh will be taxed at either 15% or 20%, depending on the date of transactions. Given that her total income already exceeds the exemption threshold and she is also not eligible for the Section 87A rebate, shifting trading activity to her account would not change the overall tax implications under the current provisions. Executing more trades through your wife’s account must strictly comply with the anti-clubbing provisions under Sections 60–64 of the Income Tax Act. If the capital used for trading is transferred or gifted by you without adequate consideration, any income arising from it will be clubbed with your income for tax purposes.
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