The Hindu Business Line : A gift for the in-laws

If my wife gifts a sum of money to my brother or his wife, will she or the recipient of the gift incur tax liability ? I understand that the income arising out of a gift made by a daughter-in-law to a father-in-law or vice versa is to be clubbed to the income of the donor. Will this apply here as well? Tushar

Section 56(2)(v) makes a specific exclusion in respect of a sum of money received by an individual without consideration from a relative. Therefore, a gift received from a relative within the meaning of Section 56(2)(v) will not be considered as income and taxed in the hands of the recipient. The term relative for the purpose of this provision is defined as follows:

spouse of the individual,

brother or sister of the individual,

brother or sister of the spouse of the individual,

brother or sister of either of the parents of the individual,

any lineal ascendant or descendant of the individual,

any lineal ascendant or descendant of the spouse of the individual,

spouse of the person referred to in clauses (ii) to (vi).

It can be seen that the brother of the spouse of the individual is a relative by virtue of (iii) above and the spouse of the brother is also a relative by virtue of (vii) above. This would mean that there would be no tax implications in the hands of the recipient when your wife makes a gift to your brother or his wife. There will also be no tax implications in the hands of your wife.

You are right in pointing out that when a gift is made by the father-in-law to the daughter-in-law, the income arising therefrom is to be included in the hands of the father-in-law.The reverse, however, is not true. When a daughter-in-law makes a gift to the father-in-law, the income therefrom will be taxed only in the hands of the father-in-law and not included in the hands of the daughter-in-law. There will also be no clubbing provisions applicable when your wife makes a gift to your brother or to his wife.

I took a loan to buy a house in Chennai. I have now been transferred to Bangalore. The house in Chennai is, therefore, not self-occupied. Can I claim the interest on the housing loan and the principal repayment of the housing loan as a deduction in computing the property income in Chennai? I have booked a flat in Bangalore and have taken a loan for the flat. I will gain possession of the flat in April 2007. I will be paying the pre-EMI interest on the second housing loan until March 2007. Can I claim the pre-EMI interest as deduction in the financial year 2006-07 in addition to the tax benefit that I will get on the first loan? I will occupy the flat in April 2007. For the financial year 2007-08, can I get tax benefits in respect of both the housing loans? N. Balaji

You have not clarified whether the house in Chennai will be vacant or let out. If it is let out you can claim the interest on the housing loan as a deduction without any ceiling limit and also claim the deduction under Section 80C in respect of the principal repayment. If it is not let out then it may be possible for you to continue to treat the house as self-occupied until March 2007, until which period this will be the only house property owned by you.

Thereafter, one of the houses will have to be deemed to have been let out and the sum that the property would fetch if it had been let out would be treated as the annual value. During the period when the house is treated as self-occupied, interest on the housing loan will be allowed as a deduction, subject to a maximum of Rs 1,50,000. The principal repayment will also qualify for deduction. During the period when it is deemed to be let out, interest will be allowed as deduction without any ceiling limit and the principal will also qualify for deduction under Section 80C.

The pre-EMI interest cannot be claimed as a deduction in the financial year 2006-07. One-fifth thereof can be claimed every year for five years beginning from the financial year 2007-08, that is, the year in which the house is completed. You can claim the tax benefits in respect of the principal and interest on both the loans in the manner stated above. You may note that Section 80C permits a deduction in respect of certain payments and deposits including principal repayment on housing loan subject to a maximum of Rs 1,00,000. It is assumed that the loans have been taken from a bank or other approved institutions. You may also note that if this were not so, the principal repayment will not qualify for deduction.

More Stories on : Taxation | Income Tax | Tax Talk

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page