When is the best time to accept gifts from your new in-laws?

Most brides and their in-laws are not aware of the tax implications of giving and receiving gifts. Many times, the realisation dawns only later at the time of filing the income tax returns by which time it is already too late to take any remedial action.

How does it impact the different people involved? The main area relates to assets that have been transferred from the in-laws to their daughter-in-law. According to the income tax act, the clubbing provision comes into effect here.

Under the clubbing provision, the income arising from a particular transaction is not considered as the income of the giftee, but rather it gets added to the income of the gifter.

So where there is a transfer of assets to a son’s wife (daughter-in-law), then the income arising from that asset will be considered as income not of the daughter-in-law but of the parents-in-law who have made the transfer.

This is true for both — the father-in-law as well as the mother-in-law. Take, for example, where a mother-in-law transfers a bank deposit of Rs 50,000 in the name of her daughter-in-law without adequate consideration. In case such an investment is earning 6 per cent pa then a sum of Rs 3,000 that is generated as income from this deposit would be included in the income of the mother-in-law.

However, the relationship of a father-in-law or a mother-in-law and daughter-in-law should exist both at the time of the transfer of the asset and at the time the income arises. If at either of these two stages, the relationship does not exist, then the clubbing effect will not be triggered.

So, for instance, if an asset is transferred to the son’s prospective wife before the wedding, then even though there will be income on the asset after marriage, this income would remain the income of the daughter-in-law.

In many cases cash is gifted and then this is invested into some asset, which generates income. In such a situation too the income arising would be included in the income of the person who has transferred the asset.
Arnav Pandya
ET Intelligence Group