Can gifting assets to family members lead to tax efficiency?

livemint.com:

Transferring assets within the family might seem like a straightforward way to share wealth, but the tax rules surrounding such transfers can be more complex than they appear.

For instance, if assets are gifted to a spouse, any income generated from those assets will be clubbed with the income of the person who originally owned the asset. In the case of a minor child, any income generated from those assets will be clubbed with the income of the highest-earning family member.

Any income of a minor child, unless it is actively earned by the child, is liable to clubbing provision. Such provisions are aimed at curbing tax avoidance through asset transfers to other family members.

Let’s break down the rules and exemptions around income clubbing.

The clubbing provisions primarily apply to transfers made to a spouse or minor children. Gifting assets to other relations, such as parents, in-laws, or major children, does not trigger these rules. Gifts to these relatives are also tax-exempt, wherein the person receiving the gift is not liable to pay taxes.

“Gifts don’t trigger any tax liability for the receiver, as long as gifts are made to specified relatives," says Prakash Hegde, Bengaluru-based chartered accountant.

Assets such as property, stocks, mutual funds, bonds, etc. can be gifted to the parents, in-laws or major children and income from such assets don’t fall under the clubbing provisions. Income such as interest income, rental income, dividend income, will not be clubbed with the income of the taxpayer making the transfer in such cases.

Funding fixed deposits of parents, in-laws, or a major child does not trigger clubbing provision. “Instead of paying directly to your parents for their maintenance, the parents can use