Specify with reason, whether the following acts can be considered as: (A) Tax planning; or (B) Tax management; or (C) Tax evasion. I. Mr. R has FDR…

CA Final · Direct Tax Laws and International Taxation · MTP · November 2026
Specify with reason, whether the following acts can be considered as: (A) Tax planning; or (B) Tax management; or (C) Tax evasion. I. Mr. R has FDR with Axis Bank in his name amounting to ₹ 50 lakhs. He gifted this sum of ₹ 50 lakhs to his son, on 10.04.2025, the date on which he attained 18 years of age. The purpose is to shift interest income from his hands to his son, so that there may be Zero tax implication, since his son has no other income, and the total interest would be lower than taxable limits for P.Y. 2025-26. II. Mr. Gaurav's Annual income is ₹ 49.50 lakhs for A.Y. 2026-27 excluding commission receivable from XYZ Limited. During March 2026, he earned a commission of ₹ 6 lakhs from XYZ Limited. He asked XYZ Limited to transfer the commission in his wife's account, who is a housewife. He also asked them to deduct TDS in her wife's name. He did it so that his total income may not cross ₹ 50 lakhs and he can save surcharge on taxes applicable on total income exceeding ₹ 50 lakhs. His wife has no other income.

Suggested Answer and Working Notes:

(b) (I) Tax Planning - Gifting of fixed deposits of ₹ 50 lakhs by Mr. R to his son who attained the age of 18 years for the purpose of shifting interest income from his hands to his son so that there may be zero tax implication, is a permitted tax planning measure under the provisions of income-tax law. (II) Tax Evasion - Mr. Gaurav's annual income is ₹ 49.50 lakhs for the A.Y. 2026-27. He also earned commission of ₹ 6 lakhs from XYZ Limited. Accordingly, his total income would be ₹ 55.50 lakhs which exceeds ₹ 50 lakhs and hence surcharge is applicable on tax on total income. However, for the purpose of saving tax, he instructed XYZ Ltd. to transfer the commission in his wife's account. This is the case of application of income and not of diversion of income by overriding title, since such transfer of commission is not under any obligation but to evade tax.

Topics: Tax Planning, Tax Avoidance & Tax Evasion

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