If I gift my Rs 2 lakh to my wife who plans to invest in FD, who will pay income tax on interest earned?

These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.

I am the only earning member of my family. My company has given me a bonus of Rs 2 lakh this year (after deducting TDS), which has been credited to my salary account. If I gift this amount to my wife and she puts it in a fixed deposit, will the interest earned be taxed in my hands or hers? I am a taxpayer, while my wife has no income.

Amit Maheshwari Tax Partner, AKM Global: Under the provisions of the Income Tax Act, 1961, while a gift to a spouse is not taxable at the time of receipt, the tax ability of income arising from such funds is governed by the clubbing provisions. As per Section 64(1)(iv) of the Act, where an individual transfers an asset to his or her spouse without adequate consideration, the income arising from such asset is required to be included in the income of the transferor. Accordingly, if your wife invests the gifted amount in a fixed deposit, the interest income earned from that deposit will be taxable in your hands and not in your wife’s hands.


The tax authorities may use bank trails and documents to verify the source of funds and apply clubbing rules. These provisions apply to transfers to a spouse or minor child. Gifts to other relatives, such as parents or major children, are generally not covered, and income from such investments is taxed in the recipient’s hands, subject to the Act.

ALSO READ | Should I increase my term insurance cover of Rs 75 lakh and health insurance cover of Rs 10 lakh considering inflation?

My wife and I are both working, and I have been managing our equity investments for the past 10 years. In 2020, I opened a second demat account in my retired mother’s name, with myself as the nominee, and started transferring funds from our salary accounts to invest in equities. I now wish to transfer this portfolio from my mother’s demat account to my wife’s demat account, for future investments. How should I go about this process? — S. Kumar

Dilshad Billimoria, MD & Chief Financial Planner, Dilzer Consultants: Your mother can gift the investments from her demat account to your wife’s account. Under Section 56(2)(x) of the Income Tax Act, 1961, gifts received from relatives are fully exempt from tax, regardless of the amount. In this case, the gift is from mother-in-law to the daughter-in-law without consideration and is treated as a valid transfer.

For a transfer from the mother’s demat account to the wife’s demat account, please complete an off-market transfer using Delivery Instruction Slips (DIS) from the relevant demat account your wife holds.

Our panel of experts will answer questions related to any aspect of personal finance. If you have a query, mail it to us right away. Email ID: etwealth@timesgroup.com