Taxation clarification on gifting MFs

Taxation
1

hi, I have some Foreign FOF which are based taxed at 12.5% fixed rate after 24 months. I am transferring those Funds to My Wife account. Then if my Wife sells those MFs, the capital gain will be taxed at 12.5%. My doubt is whether i should club this income to my income or even if taxed is paid by my wife also, the tax rate will be same only. So let her only pay the 12.5% tax. Is this ok? from ITR point of view.

2

@Quicko

3

Hi @sandeep0604

Under Section 64(1)(iv), income arising to your spouse from assets transferred by you directly or indirectly, otherwise than for adequate consideration, is required to be clubbed with your income.

So in your case:

  • You own the foreign FoFs.
  • You transfer them to your wife without consideration.
  • Your wife subsequently sells them and earns LTCG.
  • Even though the sale happens from her account, the resulting capital gain would generally be clubbed in your ITR, rather than being taxed only in her ITR.
  • The fact that the LTCG rate is the same 12.5% does not remove the clubbing requirement. Clubbing is a statutory requirement, not an option based on which spouse has the lower/equal tax rate.

Thanks

2 Likes
4

There have been cases where the AO would add your wife income to yours, but won’t remove it from you wife itr. You have to go file a case and after years of time and energy, after court order, they will remove it from your wife. Government wants your money and does not care about fairness or anything. if they can take it, they will. That’s why the taxation laws are complicated in the first place - to bully the people.

2 Likes