This investor plans to invest Rs 10 lakh gifted by her husband, sell at profit and reinvest proceeds over several years. How will gains be taxed?
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Investment plan
This investor plans to invest Rs 10 lakh gifted by her husband in mutual funds and shares. She also intends to sell these at a profit and reinvest the proceeds, including gains, over several years and wants to know if the gains will be taxed proportionately in her hands? Here is some help, as reported by ETWealth.
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As per Income Tax Act
Under Section 99 of the Income Tax Act, 2025, where an individual transfers an asset to a spouse without adequate consideration, the income arising directly from such asset is clubbed with the income of the transferor, according to Amit Maheshwari, Managing Partner, AKM Global.
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Taxation plan
The expert said that while the initial Rs 10 lakh monetary gift is not taxable in your hands, the income arising from investments made out of the gifted amount—including the initial long-term capital gains—would generally be subject to clubbing in your husband’s hands.
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Based on income
The clubbing provisions apply to income arising directly from the asset transferred and generally do not extend to income generated from the reinvestment of such income, the expert said.
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Treatment on sale proceeds
Accordingly, where the sale proceeds, comprising both the original Rs 10 lakh and the gains, are reinvested, the returns from the subsequent investments would need to be appropriately bifurcated.
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Tax treatment
The expert also highlighted that the portion attributable to the original gifted principal would continue to be subject to clubbing in your husband’s hands, whereas the portion attributable to the reinvested gains would generally be taxable to you.