Gifting an income-earning asset to a major child or your parents (in a lower slab) shifts the future income to them — legally cutting the family's total tax. The gift itself is exempt between relatives; but clubbing blocks this for a spouse or minor child.
Gifts between relatives are exempt (Section 56(2)). Once gifted, the income the asset earns is taxed in the recipient's hands — so if they're in a lower slab, the family pays less overall.
Income from assets gifted to your spouse or a minor child is clubbed back to you (Sec 64) — so this works with major children and parents, not a spouse or minor.
Investing a minor's money in exempt instruments (PPF, Sukanya) side-steps clubbing because the income is tax-free anyway.
Our CAs work out exactly how much you can save and file it correctly.
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