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No tax on gift without consideration from non-relative up to Rs50,000

LiveMint logoLiveMint 12-09-2017 surya bhatia

I was working with a company till November 2015. In February 2016, I joined another company. I was given a UAN number by my previous organisation, where I had a PF account, and my new employer added the new PF account to it. Recently, when I checked the statements of both accounts, I saw that in the older account no interest was being credited. The last interest added was in March 2016. In the new account, interest is being credited every month. Will my previous PF account earn interest? Should I withdraw the amount?

—Mohd Mazhar

Provident fund (PF) accounts have continued to earn interest whether active or dormant. However, there was restriction imposed on accounts that became dormant with effect from April 2011. Any account that doesn’t have a contribution for a continuous period of 36 months was called a dormant account and the interest accumulation was stopped. However, this restriction was lifted from April 2016 and the dormant accounts earn interest till the account holder attains the age of 58 years—the age of retirement. In your case, the account never attained the status of dormancy and hence non-payment of interest does not arise. Check if the interest is being clubbed under the Universal Account Number (UAN) for both PF accounts. If not, follow up with the Employees’ Provident Fund Organisation (EPFO) and register your grievance by quoting your UAN number.

I am a 72-year-old widow, and get pension. I also receive rent from my son and regularly file my tax return. My daughter, who is not employed or married, lives with me. For her financial security, if I transfer money from my account to her bank account, what will be the tax liability? I don’t want to invest in my name due to health and age.

—Luxmi Gupta

Gift received without consideration from a non-relative is exempt from tax up to Rs50,000 in a financial year. If it is more than Rs50, 000 in a financial year, then it is taxable in the hands of the recipient. There will be no income tax if the gift is received from a relative as defined by the income tax Act. The definition of relative includes daughter. So, any gift given by a mother to a daughter will be tax exempt.

You can transfer funds from your account to your daughter’s account, and there is no restriction on the number of times. However, it is recommended that you do a gift deed for the sums transferred because a transfer is not executed unless it is done in written and hence it is important to have a gift deed. Such transfers do not attract any tax liability for you (transfer is from a tax-paid corpus) or your daughter.

Lastly, if you do not want to invest any further in your name, you can make your children joint holders or nominees. Do ensure the same is followed in all your investments. This will also ensure that your estate planning (joint holdings and nominees should ideally be in accordance to your Will) is in order.

If my wife (non-earning) earns from an investment she made from money I gifted her, as per clubbing provisions, will there be any tax liability on me? If the tax on it is paid by me, who will the investment belong to when it matures?

—Kishor Barhate

Any sum of money received from a non-relative exceeding Rs50, 000 in a financial year is taxable in the recipient’s hands. But there are exemptions like gifts received from a relative (as defined in the income tax Act, which includes spouse). So, any gift received by a spouse is tax exempt. But it is recommended to have a gift deed for such a transfer of assets to document the proof. Say, a husband gifts his spouse Rs1 lakh. This amount does not carry any tax in the hands of the spouse but the income earned on it will be clubbed with the husband’s income as the spouse is a non-earning member. So, if Rs1 lakh earns interest at 8% (Rs8,000), this will be clubbed in the hands of the husband and taxed at his marginal rate of tax. But the compounded income, i.e., interest earned on interest, is not subject to clubbing. So, if this Rs8,000 earns further interest of Rs640, this will not be clubbed with the husband’s income. The investment’s ownership continues to be with the spouse.

Surya Bhatia is managing partner at Asset Managers.

Queries and views at mintmoney@livemint.com.

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