I work in the UAE. I send some money to my parents every few months, which they invest. In all these investments, I am the second holder or operator. Who is liable to pay tax on any income from these investments? Will the income be taxed in my name or my parent’s?
a. Taxability on transfer of money to parents:
Under the India income-tax laws, income tax is payable on any sum of money, movable property or immovable property received by an individual without consideration, except if the same is received from a ‘relative’. Under this provision, the term ‘relative’ includes parents.
Accordingly, transfer of money to your parents will not be subject to tax in India.
b. Taxability of income from investments made by parents:
Under the India income-tax laws, any income arising to any person by virtue of a revocable transfer of asset is taxable as income of the transferor.
Accordingly, if the money is transferred to parents as ‘irrevocable transfer’ and the investments are made by the parents in their name with your name added only as a nominee for future security, then the income from investments will be taxable in their hands and not yours.
However, if the transfer is ‘revocable’ and investments are made in the name of parents only for administrative convenience, then your parents won’t have any tax liability and the income from investments will be taxable in your hands.
There is a requirement to file India income-tax return for individuals in case their total taxable income (which means: their gross income excluding the exempt income) exceeds the threshold for taxable income for the relevant financial year, which is currently Rs2.5 lakh for individuals and Rs3 lakh for senior citizens (those who are resident individuals of age 60 years or more) and Rs5 lakh for super senior citizens (those who are resident individuals of age 80 years or more) for the financial year 2017-18.
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Sonu Iyer is tax partner and people advisory services leader, EY India