The Hindu Business Line : Gift cash to spouse, pay tax on interest earned

I am a salaried employee working in a State Government Department. I recently withdrew some money from my Government Provident Fund account. I would like to invest the money in a fixed deposit account for a year in the name of my wife before using it.

If I gift the money to my wife for investing in a fixed deposit account, will it attract gift tax? Will clubbing provisions be attracted in respect to the interest income earned from the fixed deposit? – H.K. Panda

The amount gifted by you to your wife will not attract gift tax or tax in any manner. This amount gifted by you to your wife cannot be treated as her income as section 56(2)(v) which seeks to tax any sum received without consideration exceeding Rs 50,000 per annum as income in the hands of the recipient also provides an exclusion in respect of certain gifts made to a relative, and the word relative for the purpose of this section would also include the spouse of an individual.

The clubbing provisions would be attracted and the interest income earned from the fixed deposits would be clubbed in your hands u/s 64(1), which provides that income earned from an asset given without adequate consideration to one’s spouse would be clubbed in the hands of the transferor.

I am a housewife and I have recently obtained a PAN card. I earn around Rs 10,000 a month via tuitions and embroidery from home and my annual income does not exceed the maximum amount not chargeable to tax.

I understand that I need not file a return if my annual income does not exceed the maximum amount not chargeable to tax. However I woulsd like to document my earnings by filing a return of income. I do not maintain books of account. If I were to file income-tax returns, would I have to attach any evidence to prove the source of income? – Vasantha

You are right that no return of income needs to be filed if your income is only Rs 10,000 a month as it does not exceed the maximum amount not chargeable to tax. You would not be required to maintain books of account. You may file a return to document your earnings and have it recorded for tax purposes, which could help you when you may be required to show source in respect of investments or expenditure. No documents will have to be filed along with the return as support to evidence your source of income.

However, mere filing a return may not absolve you of responsibility to prove when called upon that you earned the income.

This has reference to your answer in this column on June 28 where you have clarified that the long-term capital loss from sale of shares can be set off against the long-term capital gains from sale of a house property. Will this be correct even if the long-term capital loss from sale of shares arose from a sale made through a recognized stock exchange? – R. Subramanian

The reader is right in pointing out that the long-term capital loss that arose from the sale of shares, if sold through a recognized stock exchange, cannot be set off against the long-term capital gains from sale of property. This would so as the long-term capital gain from such a sale where securities transaction tax is charged on sale would be exempt u/s 10(38) and the loss will also have to be ignored. The columnist thanks the reader for pointing out this anomaly in the column.

I bought 200 shares at Rs 135.20 a share on May 19 and sold them at Rs 178.65 a share on May 27. I also made a capital loss of around Rs 1,01,000 during the first five months of 2009 from sale of shares which were bought during the first few months of 2008. Can I set off the capital loss against the capital gain? – M. Jaya Kumar

You have not indicated when the loss from sale of shares was incurred by you. You have also not indicated whether or not it has been set off. If it has not been set off, the loss belongs to the first five months of 2009, which means that it was incurred by you between January and May 2009.

The loss which relates to the period from January to March 2009 would relate to 2008-09 and can be carried forward and set off if not already set off, against the capital gain of the previous year 2009-10. This, however, can be done only if you file your return for the previous year 2008-09 before the due date for filing the return of income u/s 139(1). The loss incurred in April and May 2009 which belongs to the previous year 2009-10 can be set off against the capital gains in the previous year 2009-10.

You may also have to take note of the fact that if the loss was from sale of long-term capital assets being shares which were sold through a recognised stock exchange and where securities transaction tax is paid at the time of sale, the same would have to be ignored and cannot be set off against any gain as indicated above.

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