Your Taxes

I retired from government service in March 2017. I gifted my retirement benefits to my wife. She has invested the sum in an FD in her name.

She is a registered homeopathic practitioner and has been earning some money since her marriage.

The money my wife took from me will be utilised to buy a house and to get our daughters married.

I want to know whether the interest earned from the FD in my wife’s name will be clubbed with my income.

Bhagaban Sahoo

I understand that you have received certain sum as retirement benefit and you have gifted this to your wife to be used for the purchase of a house and for the marriage of your daughters.

Further, such money is being invested in the name of your wife in fixed deposits.

As per the provisions of the income-tax Act, 1961 (“the Act”), income arising to the spouse of an individual, from the assets transferred directly or indirectly to the spouse by such individual, shall be included in the total income of the individual.

In the instant case, as the funds invested in fixed deposits belong to you, in view of the above provisions, the interest income to be earned by your wife out of the said fixed deposits should be clubbed with your income.

Please explain the method of calculating income tax liability for quarterly instalments under SWP from debt mutual funds.

A Paramasivachari

I understand you have invested in the systematic withdrawal plan (SWP) of debt mutual funds against which you shall receive certain amounts on a quarterly basis.

Please note that under a SWP, a pre-determined amount is paid to the investor on a periodical basis from redemption of certain units of the mutual fund.

The taxability on sale/redemption of mutual fund units depends on the nature of the fund (that is, debt fund or equity-oriented fund) and the period for which the units are held before sale (which is categorised as long-term or short-term sale). In case of debt fund, if the units are held for more than 36 months before sale, then the same is classified as long-term capital asset.

However, if the units of debt funds are held for a period up to 36 months, then the same is classified as short-term capital asset. Capital gains arising from the sale of long-term capital asset is taxable at 20 per cent. The same is calculated after providing indexation benefit for the cost of acquisition for cost inflation.

However, in case of capital gain arising from the sale of short-term capital asset, the same is taxable at the slab rates as applicable to you for the year of sale.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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