Yes, under Indian tax law, you can freely gift mutual fund units or money to your spouse. Gifts from a “relative” (including spouse) are fully exempt in the hands of the recipient. Your wife will not pay any tax merely because she received a gift.

But the story does not end there.

The real tax impact arises later, when those units are sold or redeemed. The income from such gifted assets is taxed back in the hands of the giver, not the recipient. This is due to the clubbing provisions of Section 64 of the Income Tax Act.

Key Takeaways

• ✔️ Gift is tax-free for your wife.
• ⚠️ Capital gains on selling gifted units are taxed in your hands, not hers.
• ✔️ Cost of acquisition and holding period remain the same as when you first bought the units.
• ✔️ What tax you pay depends on the type of mutual fund and how long you held it.

How Clubbing Works

If you transfer an asset (like mutual fund units) to your spouse without adequate consideration, any income from that asset — including capital gains — will be clubbed with your income.

This means:

When your wife sells the gifted units:

• You must report the capital gains in your income-tax return.
• The assessing officer treats the sale as if you sold the units yourself.

This rule applies even if:

• The form of the asset changes (e.g., gift money → wife buys MF → she sells later).
• The redemption happens years later.

Cost of Acquisition & Holding Period

When your wife sells the gifted units:

• She inherits your original purchase price, and
• She inherits your original date of purchase.

So, if you bought the units in 2019 and gifted them in 2025, and she sells in 2026:

• The holding period counts from 2019, not 2025.
• The gain is long-term capital gain (LTCG).

This is beneficial for classification, even though the gain will still be taxed in your hands.

Tax Rates on Capital Gains (as per current rules)

1. Equity Mutual Funds

• Long-Term (held >12 months):
  12.5% tax on gains exceeding ₹1.25 lakh in a financial year.
• Short-Term (held ≤12 months):
  20% tax on the gains.

2. Debt / Non-Equity Mutual Funds

• Taxation varies by holding period and whether indexation applies.
• Typically:
  • Short-Term: taxed at your slab rate.
  • Long-Term: often taxed at 20% with indexation (depending on classification).

Practical Examples

Example 1: LTCG Within Exemption Limit

• You bought equity MF units in 2020 for ₹1,00,000.
• You gift to your wife in 2025.
• She redeems in 2026 for ₹1,50,000.
• LTCG = ₹50,000 (long-term).
• Exemption limit = ₹1.25 lakh.

Tax payable: ₹0
But you must still report this gain in your ITR because of clubbing.

Example 2: LTCG Above Exemption Limit

• Original cost: ₹50,000
• Sale value: ₹2,50,000
• Total gain: ₹2,00,000
• Exemption: ₹1,25,000
• Taxable LTCG: ₹75,000
• Tax @ 12.5% = ₹9,375 + cess

This tax is payable by you, not your wife.

Example 3: Short-Term Gains

If your wife redeems within 12 months of your original purchase date, it is short-term capital gain, taxed at 20% for equity funds.

Checklist Before Gifting Mutual Funds to Your Wife

✔️ Prepare documentation

A simple gift deed or declaration helps if questioned during assessment.

✔️ Keep proof of your original purchase

Because the cost and holding period flow from you.

✔️ File the capital gains in your own ITR

Even though your wife receives the money on redemption.

✔️ Choose fund type wisely

Tax varies significantly between equity and debt funds.

✔️ Don’t gift solely for tax saving

Clubbing rules remove most tax advantages of shifting investments to spouse.

Common Myths Debunked

❌ “If my wife sells the gifted mutual funds, she pays the tax.”

Not true. Clubbing rules put the tax burden back on you.

❌ “Gifting changes the cost of acquisition.”

Cost and holding period remain the same as when you originally bought the units.

❌ “Gifting helps me reduce my tax burden.”

Usually false — clubbing neutralises tax shifting between spouses.

Bottom Line

• Yes, you can gift mutual funds to your wife.
• No, she will not pay tax on receiving the gift.
• Yes, you will pay the capital-gains tax when the units are sold.
• How much tax you pay depends entirely on:
  • The type of fund (equity/debt),
  • Your original purchase date,
  • And the amount of gain.

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