Abt investing father s money in son s name

POSTED BY VIGNESH BASKARAN ON November 29, 2011 1:37 pm COMMENTS (23)


I want to invest my father s money in my name.

1.By doing like this My invesment is more than my annual income. will this become any problem?

2. I heard that the tax implications on the money which i get from my father is mine .Am i right?

3. Simply can i transfer the money form his account to my account or should i need to get his signature in a paper stating that he is gifting the money to me?

Pls guide me.


23 replies on this article “Abt investing father s money in son s name”


    Dear ashal

    I have understood your point. Thanks for guiding me this much….very patienly answering my small small questions.

    That sectoral fund risk also understood….So i ll think and decide that.

    Thank you once again………..


  2. Dear Vignesh Baskaran, Please do understand, there is difference between inflation for money & your future Gold requirement. For example for your sister, the Gold should be 500 gm at the time of her marriage. The 500 gm is the need fixed for the purpose. Now as you or your family has that 500 gm of gold today itself, no matter after 5-8 years the price of Gold is 30K or 50K per 10 gm, you have the quantity required for your goal with you. So inflation does not impact here. Yes in case, you & your family decides to increase the over all gold, then it’s another thing.

    For my personal money I ‘ll not invest in Gold if the basic requirement is already over. I ‘ll go all out for Eq. Fund selection is ok but do note that Rel. Banking is a sectoral fund & thus carry a higher risk than usual diversified fund.




    Dear ashal

    Ok. I will keep this tax saving portfolio. I ll take education loan as you adviced.now we have some gold . But as u pointed out inflation (similar to that) People will start increasing the amount of gold giving during marriages. That s y i want to invest.

    Is it better to invest with GolD ETF ( Am having demat account with fundsindia )and they are telling that they are providing sip in ETF also. but my major concern is i cant buy fractional units like mutual funds!!!

    My 2 lakh money where can i invest ?
    option 1: Gold ETF , and NIFTY BEES
    option 2: STP on available mutual funds, and gold Etf.
    If stp I have chosen HDFC prudence, BSL DIVIDEND yield plus, and Reliance Banking and their corresponding top performing liquid funds.

    Pls guide me… I think second option will be a good. What is ur comment?

  4. Dear Vignesh Baskaran, Please opt any one ELSS of your choice out of three. 60:40 in Eq. Debt is ok to me.

    If the Gold part for sister’s marriage is already there, why? do you want to go for Gold purchase. By the way you can;t SIP in gold Bees.

    In my view go for full education loan amount & use these bank FDs as collateral for your education loan. The interest paid on the education loan ‘ll be a tax saving tool. The interest earned on Bank FDs & the tax saved due to education loan, the interest outgo on education loan ‘ll be very low or near zero.




    Dear ashal

    I will reduce my ELSS funds.Till Now i have invested in 7500 in all the three funds. Let it be there. I am planning to invest another 40000 in the ELSS .
    I ll do this in FIdelity tax advantage.

    Tax saving instruments
    ELSS: 62000
    ppf: 25000
    remaining Pf.

    1.Which will u suggest among my three ELSS ? Is this allocation ok? I am ready to take risk.

    I did not take account for the inflation. Thanks. My parents also already having a house, they can manage that. I just want to add my part to the marriage..

    Regarding gold investment I am planning to do sip for gold Bees for the next one year as already they have saved(GOLD) for her.

    I will cut down that FMCG fund just one instalment is over..

    We have some 6 lakhs which I am keeping of(Locking in FDS) for my Higher education (MBA first yr fee)which will be mostly one and half years later..

    2. should i take the entire 15 lakhs as loan and invest the current money in Mutual funds(We have enough FD) or keeping this 6 lakhs for paying the fee and partially taking a loan?

    I think second option will be a good one anyhow i need your thoughts?

    3. Previous question abt investment (That 2 lakhs is separate)

    Thanks for providing a very good guidance..

  6. Dear Vignesh, You are investing in too many funds. 7 normal funds & 3 ELSS & still you are asking to add Gold ETF, Nifty ETF & bank ETF. Too many horses for your limited courses.

    Please reduce the size of your stable. Here is how –

    ICICI Prudential Focused Bluechip Equity 4000 Large cap OK
    HDFC Top 200 Fund 3000 LARGE CAP AND MID CAP OK
    Birla Sun Life Dividend Yield Plus – Growth 1000 MIDCAP AND SMALL CAP OK
    HDFC prudence 2000 Balanced OK
    ICICI Prudential FMCG Fund 1000 Switch this one to Rel. Banking
    Reliance Banking Fund 1000 OK

    Canara Robecco, fidelity tax advantage, Hdfc tax saver Invest in only one of these 3.

    I’m not sure you calculated or not the impact of inflation for your sister’s marriage goal, down the line after 8 years at 9% inflation rate, the value of 15L Rs. ‘ll be equal to 7L Rs. of today’s. Think over it.

    Regarding your gold exposure – my take is simple – decide how much Gold you want to gift to your sister at the time of marriage, divide that quantity by the months you have in your hand to reach the target. this way you ‘ll come to know the exact mly quantity of gold to be purchased. Please purchase it by purchasing either Gold Bees or Quantum gold ETF.

    I’m not commenting on the last part of your query to know your reaction for the above matter first.




    Dear ashal

    I started earning for the past 5 months. and started investing in mutual funds for the past one month.
    This is my portfolio.

    Retirement purpose:( I did not set a target for this.)
    ICICI Prudential Focused Bluechip Equity 4000 Large cap

    Sister s marriage: Expecting 15 lakhs in 8 yrs with 10 percent anualised returns
    HDFC Top 200 Fund 3000 LARGE CAP AND MID CAP
    Birla Sun Life Dividend Yield Plus – Growth 1000 MIDCAP AND SMALL CAP
    HDFC prudence 2000 Balanced

    ICICI Prudential FMCG Fund 1000
    Reliance Banking Fund 1000

    I have invested in tax saving mutual funds also.. Canara Robecco, fidelity tax advantage, Hdfc tax saver.

    All thru Funds india.
    1.Pls check and tell me am i goi in the right way?

    2. I am thinking of investing in ETF thru my father s money for one year sip of 5000 in each GOLD BEES, NIFTY bees and Bank bees or is it better to do stp in any of the above funds?

    Pls guide me ashal. Thanks for the guidance once again.


  8. Dear Vignesh Baskaran, I’m glad to know that we were able to help you. Now as your age is known to us, please do tell that right now you are earning or not. If you are earning, please start investing for your retirement from today itself.




    Dear ashal

    Once again thanking you very much and the entire jago investor forum for enlightining me about the finance at the young age(21) itself.

    Thank you so much.

  10. Dear Vignesh, if you are gifting to your parents or vice verse & the money is finally invested in Bank FD, the interest ‘ll become taxable in the name of the gift receiver.

    Hope it’s clear to you now.




    Dear ashal and just grwo money
    Very good discussion.
    Final conclusion:The money given by father to son is not taxable. and The income generated on the gift money by invesment is always taxable to son s hands.(REceiver).

    Am i right ? pls correct me if I am wrong.

    At this time I got another doubt ashal

    I will give some of my earned money to my mother /father and she puts that in fixed deposit . The interest is taxable according to their tax slab. Am i right?

    Pls correct me if I am wrong.

    Thank you so much for enlightning me…

  12. Dear justgrowmymoney, let me conclude the discussion. From your given example of father earning 9.5L Rs. my dear friend as per his regular income tax slab & adjustments for tax savings investments etc. first he ‘ll pay tax on that income of 9.5L Rs. Let’s assume the father is running a home loan interest of 1.5L Rs. & do have basic investment of 1.35L Rs. in 80C, CCF & D, his taxable income ‘ll be 6.65L Rs. The Tax on this income ‘ll be 99650 Rs. or in round figure 67000 Rs. So post tax payment net income in the hands of father ‘ll be 5.98L Rs.

    Nowthis post tax income of 5.98L Rs. is father’s capital & he is free to use it as per his own choice. If he opts to gift 50K to each of his 4 major children & those children are either not earning or earning in 10% tax slab in that case the income generated from this gifting amount ‘ll be considered the income of those children.

    Section 64 clubbing provisions applies for spouse, minor child & from in laws to d’ter in law gifts.

    Hope I’m clear to you now.



  13. Ashal – Not a core tax consultant myself in my determined search of the IT act (http://law.incometaxindia.gov.in/DIT/Income-tax-acts.aspx) I have not been able to find a section which says that the donor is liable to tax (except in spouse clubbing provisions Sec 64). Neither have I been able to find a section that says that if a Father gifts to a major son the amount is taxed in the hands of the receiver.

    However, dont you feel that this presents a very easy tax loophole and that the taxman would not allow such straighforward transfer of income to lower taxation categories? (say, Father to a college going major). And assuming someone has 4 male children and has income of 9.5 lacs can they just transfer 1.9 Lacs to each child taking the annual income of everyone (including the Father) to 1.9 lacs and the entire family pays ZERO tax. I still agree I may be wrong here, but this appears too good to be true. Don’t you think so?

  14. Dear Justgrowmymoney, can you produce any specific wordings for the matter we are discussing in the income tax act. As far as I know – Both the respected Lakhotias (father & Son) had tols several times that in case of gifting cash through bank cheque or net banking transfer among the defined blood relatives – the gifted amount become the capital of gift receiver & the tax liability ‘ll be on the receiver & not on the donor.

    Now do tell me who is right? You or they? I’m ready to amend myself If I’m on wrong side.



  15. Ashal – I agree with you on rent earning property. It will not be clubbed with the donor. For that matter any non-cash property falls into non-cash category, say, stocks, jewelery, art work if received from the parent is never taxable.

    Cash does not enjoy that benefit that by gifting it away the tax liabilities can be transferred. It is only when money/cash is transferred by execution of a will that further investments will be taxed in the hands of the receiver.

    Clubbing does not only apply to spouse because then it creates an easy tax loophole, doesn’t it?

  16. Dear justgrowmymoney, Please do not mix up the 2 cases. For non working spouses the clubbing provisions of section 64 ‘ll come into picture, hence the income ‘ll be taxable in the hands of gift donor.

    Here in the case of father gifting to son. the gift amount becomes capital of son & accordingly the income generated from this capital ‘ll be taxable in the hands of son itself.

    From your theory – If a father is gifting a rent earning property to his son/D’ter (already major & earning), the rental income should be clubbed with the father? or for that matter the property is sold out later on & the capital gains ‘ll be clubbed with the father’s income?

    That’s not the case. Please check again.



  17. Vignesh and Ashal – Making a Gift deed will not transfer the tax liability to the receiver – it still rests with the donor IF THE money is invested. Else it becomes an easy route for someone to make benami investments using all their blood relatives who inturn can gift the money to their relatives and so on. Simplest example is that people create FDs in their non working spouse’s or parent’s names. According to the taxman the individual is liable to tax on the interest.

    However any money received as gift when SPENT is not taxed. If my parents give me 100,000 and I splurge on a vacation or buy a depreciating good like a car (and dont proft from selling it later) then it is tax free. But if I invest it and make profits the tax liability is with my parents.

  18. Dear Vignesh Baskaran, First of all please convey my wishes to your father. May God provide a recovery to him if possible at all.

    Coming back to your query – One option is to first change the signature in the bank account itself. Then open a http://www.fundsindia.com account for your father.

    If it’s not possible or you feel problematic, you may opt to go for gifting route.

    Regarding taxation of stocks & Eq. MFs – if you are holding for more than 1Y, the same are tax free hence the question of taxation does not arise no matter you are investing under your own name or father’s name.




    Dear ashal,
    Thanks for answering clearly ashal

    Actually my father cant do any kind of transactions in mutual funds or stocks as he met with an accident two years ago and now sign mismatch happens everywhere.That is the sole reason for investing his money in my name.He is a pensioner and in 10 percent tax slab..He already have some sufficent Fixed deposits in the bank and MIS . so i want to have some equity exposure.we have some 3 lakhs lying in the father s savings bank account.

    I want to invest the money in my name(son)..
    From ur answer i got into this conclusion
    1.I have understood that the income generated on the money gifted from my father is taxed on my hands(Receiver).
    2. I need to do this in a plain gift deed

    Is the same holds good for other investments like stocks and mutual funds also?
    Pls guide me ashal

  20. Dear Vignesh Baskaran, let me understand your query. I think your father is in higher tax slab than you & if he is going to invest say in bank FDs his tax liability ‘ll be on higher side.

    If my understanding is correct. Receive Gift amounts from your father under a plain gift deed & invest in the same bank FDs of your choice. In this case as the gift has been made to you, the amount becomes your capital & any income generated from this capital if it is taxable ‘ll be in your name.

    If I’m unable to understand your query, please clarify the position.




    @just grow money

    I may not be clear in the above messages.I want to convey this only

    as per these articles it is mentioned like the son will be taxed according to his tax slab for the income generated on the money given by the father to son.

    Pls clarify this.. sorry for not being clear in the previous messages.

    thanks and regards


    @just grow money

    pls see this article http://jagoinvestor.dev.diginnovators.site/2011/01/income-tax-saving-tips-video.html
    in this it is specified like the given amount is not taxable but the money generated from that amount will be taxed according to the receiver s slab only for the blood relations

    In a Bline article i read like this

    Here it is mentioned like that income generated from the money given to me by my father is taxable according to my tax slab under section 56.

    Pls clarify this doubt.


  23. We generally hear stories the other way round where children invest in Parents’ name to avoid tax [One can’t do so, that is another story]. Coming to your case gift between blood relatives has no limit. Just an account transfer is really enough – you dont need to have a gift deed. However if the money is invested (and not consumed) then the income needs to be added to the donor’s income. So any profits need to be added to your Father’s income and he must pay the tax. Assuming the profits and other income does not exceed your father’s tax limit there is no tax assessed.

    I dont know what your personal circumstances are but I would let the money sit in your father’s account, you can invest the same in his name (MFs, stocks, Gold etc.) and can just take the profits each year. This will save a lot of paper work hassles when filing taxes.

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