Demat account update : Any amount received by a person from his ‘relative’ is considered as gift and is not subject to income tax. Irrespective of the amount received from the relative.
Many people have many questions regarding tax. Which income will be taxable under which head of Income Tax Department. Who will get discount? The provisions of gift, will and many other issues related to tax may arise in your mind. One such question is –
My son will turn 18 in July this year. I want to apply for PAN card and later open a bank account, demat and trading account as well as a PPF account for the same. Since he is still a student and not earning, these accounts will be financed by gifts from us, his parents. What is the tax treatment for these transactions? Will clubbing provisions apply in this case?
As per section 56(2)(x) of the Income Tax Act, 1961, any amount received by a person from his ‘relative’ is treated as gift and is not subject to income tax. Irrespective of the amount received from the relative. Since parents come within the definition of ‘relative’, any amount received by the parent to the son will not be charged to tax.
Amit Maheshwari, Partner, AKM Global while answering the question said that your son will turn 18 soon and you will open a bank account, demat account and a PPF account for him using your own money. The amount used for opening the above accounts will also be treated as gift and hence, will not be charged to tax in the hands of your son, irrespective of the amount used for opening the account.
With regard to clubbing provisions, only the income of the minor child (below 18 years) is clubbed and taxable in the hands of the parent whose income is higher. This does not apply to the adult child. Therefore, any income of your son on attaining majority will not be clubbed with your income and will be assessed separately in the hands of your son at applicable tax slab rates respectively. In this case, he will also have to file a separate income tax return.
Question: I have demat accounts in my name in which my children are the beneficiaries. Since the children have now moved to US and Australia, I am not clear whether they will be able to retrieve my investments as beneficiaries in the usual way as an Indian resident. As of now he does not have a demat account in his name. Do I need to initiate precautionary measures to facilitate smooth transfer of shares to my subsequent children? Should I give up my equity or wind up my investment in shares? What will be the tax treatment under the existing rules for children in both the cases?
Raj Khosla, Founder and Managing Director, MyMoney Mantra says that since you are the sole owner and your children are nominees, they will be able to claim the securities lying in your demat account after your demise. It would be helpful to open a demat account for your children during their next trip to India as it would reduce the hassle later. Opening of demat account will require NRI/foreign national physical presence, KYC and other requirements as per rules. It can also be beneficial to liquidate your investments systematically during your lifetime to reduce tax implications, operational hassles and ensure smooth transfer of assets to legal heirs.
Taxation on liquidation by you or the nominee will depend on the total income in that financial year and the tax laws prevailing in India and the home country of the nominee. It is more likely that the tax burden will be higher in the hands of the nominee. You should also consider getting the Will executed in consultation with a lawyer.
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