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Avik (Student)     06 January 2014

Gift to major son: credibility, taxes and joint a/cs

My father passed away during service in BSNL when I was already a major and my mother (below 60 now) received death/retirement benefits along with family pension.

If the money is invested in Fixed Deposits in my mother's name, she has to pay tax on interest above Rs 10,000/- as her taxable income crosses Rs 2 lakhs by pension alone. But I, being her only major son now and being a student have no taxable income as such but PAN card.

Therefore if the FDs are in my name, I have to pay no tax on the interest due to income < 2 lakhs. For this, my mother must gift me the money by way of a Gift Deed.

My questions are:

1) Is it mandatory for the gift money to be deposited in my single account or can a joint account where I am the first holder also do the job ? Please note that my mother will be the 2nd holder and so the FDs from that account will have her name too when i make e-STDR by online banking.
 
2) I understand gift deeds of movable property don't need registration. But how valid is a gift deed on plain paper with witnesses as compared to stamp paper with notarial seal ? Will they be accepted by the Income Tax Department ? Will it be valid if say 4-5 lakhs are gifted on Rs 10 stamp paper ?
 
3) Also, I am confused about opening a single account in my name or joint account with myself as first holder and my mother as second holder. Just because my mother is the second holder (Either or Survivor operation) of the account receiving the gift money, will the gift deed be put to question ?
 
I also do not wish to outright take away any legal rights of my mother to the money (if possible along with tax benefits) which brings in the question of Joint A/C. How valid is money gifted to joint A/C of Donee as primary holder and Doner as 2nd holder ? (Either or Survivor) I understand when the money is considered of the first holder and the second holder withdraws, it is automatically counted as a legal gift.


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 5 Replies

Dr J C Vashista (Advocate)     06 January 2014

1) It is your choice and not mandatory for the gift money to be deposited in single account.  

2) It is wrong and incorrect to understand gift deeds don't need registration, it is compulsory. You will have to pay stamp duty and registeration charges.
3) Ask your banker, not a legal querry.
4) Why are to avoiding/ shying away from payment of tax when income is generated by you and you are a citizen of India?

Avik (Student)     06 January 2014

Sir, my humble submission to you is that I cannot understand why you say that registration of gift deed of movable property is mandatory. I would be grateful if you elaborate your point of view citing necessary acts or judgements or any other relevant documents.

I quote the Economic Times which says in its edition of Aug 12,2013 "Registering a gift deed with the sub-registrar of assurances is mandatory as per Section 17 of the Registration Act, 1908, failing which the transfer will be invalid ..... However, if you want to gift movable property like jewellery,registration is not compulsory." https://articles.economictimes.indiatimes.com/2013-08-12/news/41332727_1_gift-immovable-property-transfer-agent-gift-deed

I also quote from Section 18(d) of the Registration Act 1908,
      Section 18 (Documents of which registration is optional)
         (d) instruments (other than wills) which purport or operate to create, declare, assign, limit or extinguish any right, title or interest to or in movable property;
https://dolr.nic.in/acts&rules/registrationact(1908).htm

Also, please do not label this as tax evasion. I am simply seeking ways of having legal tax benefits.

Advocate Ravinder (Advocate/Attorney)     06 January 2014

Instead of keeping the money in fixed deposits, put it in some traditional life insurance policies preferably LIC, on your name. The money will be paid by your mother. I will not attract income tax much compared to fixed deposits. Coming to gift deed, registration and payment of stamp duty is compulsory. Ofcourse for movables, stamp duty and registration will not apply. Mere transfer of possession is enough.

Avik (Student)     09 January 2014

Does Indian law have any specific provisions as to the mutual independence of two witnesses of a document like a Gift Deed ? Or can the two witnesses be related to each other ? Mention of the relevant acts/sections would be highly appreciated.

Dr J C Vashista (Advocate)     10 January 2014

Mr. Avik,

Any two witnesses, competant to contract, can witness signing the executant., no relevance of relation.

For relevant acts/section please contact local lawyer

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