As the world revolves around the revolution, majority of people are at the same time of seeking greener pastures abroad from where they support their parents and siblings financially. However, even as they carry out transactions to their families back home, they are they are the tax payers but hardly understand tax treatment of such transactions.
What are the tax insinuations on money sent to a parent’s account?
The money of a gift hence it does not incur any tax implication neither to the sender not to the receiver. There is tax exemptions on gift exchanged between relatives who not only include blood relatives but also spouse’s lineal ascendant or descendant. The financial gift could be in the form of cash, bank transfer, cheque or even in kind.
Does money received and invested in fixed deposits, shares and other avenues attract any taxes?
We always send money to our parents to invest in buying houses, cars or even to stash away as fixed deposits. The said money is not taxable, but the income from them is taxable including any interest income earned from fixed deposits. At the same time, capital gains and losses incurred from funds invested in shares also attract taxes.
How is money returned to children treated?
When a parent decides to transfer money to their children, again neither the sender nor the receiver has any tax obligation to undertake. However, the children shall meet the taxes on any income they earn from the funds transferred to them or better still income gained from purchasing assets with the said funds.
However, the principal is only applicable to money transferred to adult children. Income transferred to a minor’s account is taxable though in the parents’ hands.
Is necessary that children or parents receiving huge amounts of money from either party reports for tax exemption?
Yes. This is a prudent thing to do if a large sum of money is received as a gift to show that it is not taxable. Proper documentation is also required on receipts of fixed payments so that it is treated as a gift transaction.