Sometimes, a question may arise as to what would happen with regard to a provision which was introduced by the Finance [No. 21 Act, 2004 with effect from 1st of September, 2004. Well, this provision relates to taxing any sum of money received by way of gift exceeding the sum of ` 25,000 (now ` 50,000). However, the section provides that this provision will not apply to any sum of money received from any relative. In the above case the sum of ` 5 lakh is received by the son from his father who being a relative is covered in the above exception. Hence, even when the gift is in the excess of ` 50,000, it will not be taxed as income. Thus, it is now time to so plan and arrange your affairs that you make a gift, to each of your major children, and especially those children who are still studying and do not yet have any income. More particularly for your major girl child a gift of that amount which you plan to spend at her marriage is a definitely great idea. After receiving the gift from you, your major children can invest the money in any manner they like. If they make the investment in shares or in mutual funds, then the income arising therefore would be tax-free. If required the major child can loan back the amount to the father on interest. The interest paid by the father would be allowed as a deduction from his business income if the amount taken as loan from his son is used in the business or profession. If the income of the major male child is in excess of ` 2,00,000 during the financial year 2012-2013 relevant to the assessment year 2013-2014 then investments can be so planned so as to get the benefit under Section 80C of the Income Tax Act, 1961. Deduction from their income is permissible to taxpayers to the maximum extent of ` 1 lakh in respect of stipulated investments and expenditure made by them, for example in insurance premium, PPF, etc., etc.
People who are on the verge of retiring and are going to receive a big sum of amount by way of retirement benefits should definitely consider making a gift to their major children and save the overall income tax liability of the family. The amount which has been gifted away to the children and the income arising there from becomes a separate income of the major child. The income so arising to the major child can be withdrawn and spent on household expenses or even on his /her own education.
Making a gift to your major child is a practical, simple and efficient tool of tax planning. Do remember that your major son should also apply for a separate permanent account number by submitting Form No. 49A. So why wait, start now and relax and enjoy the tax benefits as a result of new separate independent Income tax file of your major children which is just a child’s play with no hassles and no tension from the tax department.