Tax saving through gifting to Parents

POSTED BY Prateek Sharma ON November 12, 2012 6:02 pm COMMENTS (11)

It is understood that any interest earned by money/property gifted to mother(who happens to have no income hitherto), if under the limits of exemption (i guess 2L) is tax free. I also have the gift deed generated wherein it is stated that I transfer 25k monthly into my mothers account, which is being used as a recurring deposit installment in her account itself.

My question is do I intimate the bank about the gift deed so generated and save on the TDS they might cut. How do I go about declaring that to bank. Or the only channel is to file an ITR claiming refund on pretext of the deed later on.

11 replies on this article “Tax saving through gifting to Parents”

  1. Mahesh kumar manohar says:

    Sir i have bought a property .than i have help hin relatives rs.80 thousand helping through my father in low please sagest to .thear are rual services act. 16 .4. 1

    1. Sir, I am not able to get your query !

  2. Dear Prateek, RD accounts are not liable to TDS. If you are gifting your own capital to your mother, it’s her capital now & any income earned by her from her investment of this gifted amount’ll be taxable income to her name. You are not in the picture.

    Thanks

    Ashal

  3. Bhushan says:

    Hi Prateek,
    My understanding was that your income at the end of year would be Rs 5 lakh+16K. But Bharat shah has mentioned here that it would be only 5lkah. Per him income from gift to parents is not clubbed with your income, but only income from gift to wife/childeren is clubbed.

    I searched frther in internet now. There are just two responses. both confirming Bharat’s statement.

    Regards,
    Bhushan.

  4. Prateek Sharma says:

    @Bhushan:
    Your statement rendered all my alleged understanding of the topic crippled. 🙂
    So just to clear up please tell if my inference of your statement is wrong.

    1. Assuming my income to be 5lacs. (TDS/ITR filed for 5 lacs)
    2. of this if i gift 3lacs to my mother in her account and it is invested as an FD
    3. At the end of year she gets say 16k as interest
    4. Does this make my income 5lacs+16k for the year. OR
    5. Does my mother file ITR for 16k, which is her income for the year, my income still being 5lacs.

    Thanks

    1. bharat shah says:

      as i understand the clubbing provision is applicable to earning from gift to spouse and minor children(with some exception), and not earning from gift to mother. gift itself to such close relative is not attracting any tax, provided your gift should be genuine and supported by your good assets.

  5. Bhushan says:

    Prateek,
    While you can avoid TDS by producing form 15G/15H, you should also know that any interest generated by your gift should be clubbed with YOUR income when you file for tax returns. So, while gift itself is not taxed, income generated out of gift is taxed tothe donor.
    Regards,
    Bhushan.

  6. BanyanFA says:

    Prateek,
    Existence of a gift deed does not matter for Form 15G / H. The reason being these forms assume that the income generated under the head of the individual is from the capital of the individual.

    Your gift deed is not required to be shown to the bank / tax returns / tax forms. Keep it safe – it would be only required when tax official may pick up the return of your parents in a tax scrutiny and want you to justify the source of the capital generating such income.

    1. Prateek Sharma says:

      Thanks BanyanFA
      that helped a lot, i guess that was the last piece to the jigsaw I was after for some days now.
      Thanks again and a happy diwali

  7. Prateek Sharma says:

    Thanks Manish,
    just to clear up, the description of a bank recurring deposit (which in this case earns interest over 10k, which as per your referenced article is liable to TDS) goes into Schedule II or Schedule III of the form 15G ?
    Secondly looking at the form I now realise that the Gift deed generated is of no consequence as there seems to be no provision to supplement 15G with the deed, to authenticate the declaration.

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