Money gifted to spouse: income may be taxed in donor’s hands

A gift of money to a spouse is not taxable in the recipient's hands, but the income earned from that gifted amount can be clubbed with the donor's income, according to tax experts. Nishant Shanker of Navraj Global Advisors explained that under Section 99(1)(a)(ii) of the Income-Tax Act, 2025, if gifted money is invested, the resulting interest or income is generally taxable in the donor's hands. For example, if a husband gifts Rs 5 lakh to his wife and she puts it in a fixed deposit, the interest earned is typically added to the husband's taxable income.

However, income earned from reinvesting that original income is generally taxable in the recipient's hands. For instance, if a wife receives Rs 80,000 in interest from a fixed deposit funded by a gift, that Rs 80,000 is clubbed with the donor's income. But if she reinvests that Rs 80,000 and earns Rs 8,000 from the new investment, that Rs 8,000 is taxable in her own hands. Taxpayers should distinguish between the original gifted amount, the first-level income from it, and income from reinvested earnings when determining tax liability.