Gift your daughter money. It's tax-free!

Our expert Sandeep Shanbhag explores different effective ways of transfering money to your loved ones back home.

I am an NRI in Saudi Arabia and my daughter is an NRI in the US. I am likely to become a resident of Saudi soon.

I want to transfer Rs 50 lakh to my wife. Will this transfer amount be clubbed with my income. What's the best possible way of transferring money to my wife?
--- Thakur

In the case of the spouse, you are right, the income on gifted corpus is clubbable in your hands.

There is no tax applicable and no clubbing provision in respect of gifts given to major children. Similarly, the gifts given by children to parents are tax-free and the clubbing provision is not applicable.

Therefore, prima facie, you can transfer Rs 50 lakh to your daughter and then in turn she can transfer it to her mother. However, it would be preferable for the first stage transfer (you giving a gift to your daughter) to take place outside India. In other words, you should directly transfer the money to your daughter from your bank account abroad. This would be a gift given outside India and therefore will not come under the purview of Indian law.

In the latter case, however, where both gifts are routed through Indian bank accounts (whether NRE or otherwise), there is a chance that the tax officer may view these cross transfers as a tax evading mechanism.

The writer is Director, Wonderland Consultants, an investment and tax advisory firm. He may be reached at sandeep.shanbhag@moneycontrol.com

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