Tax implications on gift received in Cash by a minor

POSTED BY rakesh ON March 1, 2013 3:58 pm COMMENTS (18)

What are the tax implications on gift received in cash by a minor.  For eg. my child receives gifts in cash from his grand-parents, relatives. what would be the best way to invest and save tax. Should I open a separate bank account in his name and invest in FDs.

Appreciate your advise.

Thanks in advance.

Rakesh

 

18 replies on this article “Tax implications on gift received in Cash by a minor”

  1. Dear Rakesh, as you are depositing money into your wife’s account, it’s becoming her capital. Although in future, your wife may face trouble, when the amount becomes bigger & bigger to prove the authenticity of the funds.

    Thanks

    Ashal

  2. Dear Rakesh, you are referring to D’ter’s amount or Wife’s amount in the above reply. In future please do not accept cash gifts. Instead ask for cheques or drafts or nettransfer only. The reason is cash transaction may create problem in future, if tax men knock at your door.

    Thanks

    Ashal

    1. rakesh says:

      Dear Ashal,

      I am referring to my wife’s account. Usually my child get gifts in cash of 20k – 30k from grand-parents (both sides), uncle, aunts and we deposit it to my wife’s account and she then opens FD.
      What is the best way to make use of this amount?

  3. rakesh says:

    Dear Ashal,

    We received the amount by cash and deposited the same into our respective accounts.
    My wife then opened an FD in her name from that amount for 2 years. We still have some more amount and want to invest it wisely.

  4. Dear Rakesh, how did you receive the amount? Was it in Cash or through Cehques? Whose money is there in the FDs of wife’s name?

    thanks

    Ashal

  5. rakesh says:

    Thanks Ashal.

    We don’t have any gift deed, Is it mandatory to make a gift deed that the amount has been given by grand-parents to my child?
    My wife is not working and already has few FD’s in her name for which she submits from 15G.
    We both invest online in MF. Should she invest lumpsum in HDFC liquid fund and do an STP to HDFC prudence? We can keep this investments for 2-3 years.

  6. Dear Rakesh & dear Pravesh, as per the shared articles, those defined 44 relationships may gift tax free amount with out any limit. So I stand corrected here from my original reply that the amount received from such defined relatives ‘ll be tax free at the time of receipt.

    Yes any taxable income generated from this gifted amount to that minor child, ‘ll be come taxable in the name of either father or mother who ever is in higher income earning zone.

    Thanks

    Ashal

  7. Pravesh Jain says:

    Hi Ashal,

    Gone through that link and it says exactly the statement mentioned by me that gifts received from relatives are tax free without any limits.

    My question was more on your statement “no tax on gift but the moment, the money is coming from relatives other than grand parents, it’s taxable income beyonf that limit of 50K. ” which has confused me.

  8. Dear Pravesh, please check the below link.

    http://taxworry.com/gift-meaning-relative-huf-exempt/

    Thanks

    Ashal

  9. Pravesh Jain says:

    Hi Ashal,

    For example if Mr. A has two children B & C. Now B is married to X and C is marired to Y. Now if a Child of B receives a gift from C or Y or sibling of Y (or sibling’s spouse) than this should be tax free.. isn’t it? and similarly gift from any such linear relations.

  10. Dear Pravesh Jain, please create an example for your query. I’m unable to pick up from your query. Please help me to understand it so that I can answer it if possible at all.

    Thanks

    Ashal

  11. Dear Rakesh, the gifted amount of 5L Rs. at the time of receipt is tax free but as you want to invest in bank FDs, you are already aware that interest from FDs is taxable, hence in your case the interest income from the gifted 5L Rs. ‘ll be taxable. Now comes the question, in whose name? You or your wife, who ever is earning higher ‘ll add this interest income into your income & pay tax accordingly. Is there any way out? Yes, invest the amount in instruments where income is non taxable like Eq. MFs.

    Thanks

    Ashal

  12. Pravesh Jain says:

    Hi Ashal/Manish,

    Just for knowledge sake, please suggest isn’t it that any gift received from any linear ascendent / descendent or their siblings (and sibling spouse and again spouse’s linear ascendent/descendent) are tax free with only exception of your own spouse. And this rule is independent of someone being minor or major.

    Therefore if relative in this case is child father/mother sibling or their respective spouse etc.. will be non-taxable.

    Please correct if above mentioned is not correct. Thanks.

  13. rakesh says:

    Thanks Ashal & Manish for your reply. How should i invest this amount to get tax benefit.
    For eg. If My child get Rs. 5 lakhs as gift in cash from grand-parents, should I open an FD in my child’s name. What about the income generated from this investment?

  14. Dear Manish, if the money is coming from Grand parents, no tax on gift but the moment, the money is coming from relatives other than grand parents, it’s taxable income beyonf that limit of 50K.

    Still i’ll wait for your post to clarify/update myself. πŸ™‚

    thanks

    Ashal

    1. But that limit of 50,000 is old .. Now its 75,000 …

  15. I guess in this case , there should be no tax , as its coming from grand parents … relatives can make any kind of gifts , its not taxable ! ..

    And @Ashal .. that limit is not 75,000 . Not 50k . I am doing a post this coming monday on this topic of Gift tax !

  16. Dear Rakesh, such gifted amount if crosses a limit of 50K Rs. collectively, it’s your/wife’s taxable income. Even the income generated from gifted amount ‘ll be taxable income in your name or wife if she is earning more than you.

    thanks

    Ashal

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