The gratuity amount received upon retirement is taxable if it exceeds a certain limit. However, if a person gives a portion of the gratuity amount to their spouse, it is considered a gift and is not subject to tax.
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Tax on Gratuity: There are specific tax rules for gratuity. The tax rules apply to the gratuity amount received by an employee upon retirement. However, what are the tax implications when an individual transfers a portion of their gratuity to a family member? This question was raised by Rekha Sharma from Jaipur. Her husband recently retired after 30 years of service and wants to transfer a portion of his gratuity to her. She wants to know if she will have to pay tax on this amount. Moneycontrol asked this question to renowned tax expert and CA Balwant Jain.
Money transferred from husband to wife is considered a gift.
Jain said that Rekha Sharma’s husband’s idea is good. Tax is levied on gratuity received at retirement according to the prescribed rules. If the gratuity amount exceeds the exemption limit, then tax will be applicable. Regarding her husband transferring a portion of his gratuity to her, this would be considered a gift. When one family member transfers money to another, it falls under the category of a gift. This means that the portion of the gratuity transferred to Rekha Sharma by her husband will be considered a gift.
The income from a gift will be subject to the income-clubbing provisions.
He explained that since this is a gift to Sharma, she is not liable to pay tax on it. This is because a gift from a husband to his wife is not considered income for the wife. However, if any income is generated from this gift, it will be added to the husband’s income. If Rekha Sharma spends this money and does not invest it, she will not receive any income from it. In such a case, the income-clubbing provisions will not apply. If Sharma invests this money and earns a return on it, that return will be added to her husband’s income. Then, tax will be levied on that income according to the husband’s tax bracket.
