Taxability in case of Gifts from Spouse (Clubbing of Income)

A very common and frequent question running in the mind of taxpayers is the taxability of gifts. In this part, you can gain knowledge about various provisions relating to taxability of gift received or given by spouse i.e. sum of money or property received by spouse without consideration or a case in which the property is acquired for inadequate consideration. We separated it into three situations for easier understanding.

Situation 1 - Income earned on transferred Assets

• Transfer of Asset (other than house property) 
  

  Where there is a transfer of an asset (other than house property), directly or indirectly, from one spouse to the other, otherwise than for adequate consideration or in connection with an agreement to live apart, any income arising to the transferee-spouse from the transferred asset, either directly or indirectly, shall be included in the total income of the transferor-spouse.   

• Transfer of House Property  

  In the case of transfer of house property, the provisions are contained in section 27. If an individual transfers a house property to his spouse, without adequate consideration or otherwise than in connection with an agreement to live apart, the transferor shall be deemed to be the owner of the house property and its annual value will be taxed in his hands.

Note - It is also to be noted that natural love and affection do not constitute adequate consideration.

Situation 2 - Income from accretion of the transferred Asset

• It may be noted that any income from the accretion of the transferred asset is not to be clubbed with the income of the transferor.
• The income arising on transferred assets alone has to be clubbed. However, income earned by investing such income (arising from transferred asset) cannot be clubbed should be taxed in the hands of Transferee.

Situation 3 - Taxability of Gifts in the hands of Transferee

• Transfer of asset (other than house property)   

  Any sum of money received without consideration (i.e., monetary gift may be received in cash, cheque, draft, etc.) by an individual / HUF will be charged to tax. If the following conditions are satisfied then sum of money received without consideration. The aggregate value of such sum of money received during the year exceeds Rs. 50,000. But in case Money received from relatives then its not charged to tax Relative for this purpose means.
  
  
• 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 descendent of the individual
• Any lineal ascendant or descendent of the spouse of the individual
• Spouse of the persons referred to in (b) to (f). Hence no taxability of gifts in the hands of Spouse