Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

GIFTS FROM RELATIVES TAXFREE!

No stamped document required for gift of movable property,

But it is advisable to keep letter of gift from donor on record!

Several AM readers poured in their questions in response to the article last Monday on gifts and income-tax liability. Some of these queries which touch issues of popular interest are replied hereunder:

 LIST OF RELATIVES COVERED

Query:  Your article states that gifts received by an individual from his relative are treated as exempt, even beyond Rs.50,000 in a year. Can you please elaborate which relatives are covered for this purpose?

 Reply: One of the important exceptions provided under Section 56 of the Income-tax Act, in regard to taxing gifts as income, is in respect of sums received by any individual from his/her relative out of natural love and affection.  For this purpose, the term ‘relative’ has been defined to include the individual’s spouse, brother or sister of the individual or spouse, brother or sister of either of the parents of the individual, any lineal ascendant or descendant of the individual or spouse and finally the spouse of any of the above-referred persons.  (more…)

PRACTICAL CASE STUDIES ON TAXABILITY OF GIFTS

Specified gifts received in cash or kind exceeding Rs.50,000 in value during the year are treated as income liable to tax !

       Section 56(2)(vi) had cast income-tax liability only in respect of a ‘gift of any sum of money exceeding Rs.50,000’. In view of this clear language, any gift received in kind (not being any sum of money) clearly fell outside the liability for income-tax, irrespective of the value of such gift.

       However, as per the provisions of Section 56(2)(vii) introduced with effect  from 1st October, 2009, in case of nine specified properties as mentioned hereunder, received by an individual or HUF, either by way of gift or for a purchase consideration that is treated by the Assessing Officer as inadequate, the market value of such gift or the differential value of such purchase, if exceeding Rs.50,000, will be taxed as income from other sources. (more…)

TAX PLANNING FOR GIFTS TO WIFE!

Remember that income from accumulated income is outside the purview of Section 64!

      In the context of the clubbing provisions under Section 64 of the Income-tax Act and Section 4 of the Wealth-tax act, it is important to note that the income liable for clubbing is such income arising from the amount of the gifted asset and the wealth liable for clubbing is such wealth representing the amount of the gifted asset. If the transferee continues to accumulate the income arising from the gifted asset and further income is generated from such accumulated income, such further income is not liable for clubbing under Section 64. Similarly for purposes of wealth-tax, such accretions to be gifted asset are also not liable for clubbing. (more…)

SCRUBBING THE CLUBBING PROVISIONS

Gifts to Son’s Wife on the occasion of Marriage can help save smart tax for a lifetime!

      The abolition of Gift-tax since 1st October, 1998 has also thrown open several opportunities for planning to reduce a taxpayer’s income-tax and wealth-tax liabilities. Moreover even under the provisions of Section 56(2) as effective from 1st September, 2004 (and further amended w.e.f. 1st April, 2006 and 1st October, 2009), seeking to treat gifts exceeding Rs.50,000 as income, gifts made to ‘a relative’ have been duly exempted.

      However the ‘clubbing provisions’ under both the Income-tax and Wealth-tax Acts, seek to guard against tax-avoidance through the route of gifts to close members of the family such as spouse and son’s wife. (more…)

WATCH OUT GIFTS YOU RECEIVE!

Specified Gifts in Cash or Kind exceeding Rs.50,000 in value treated as your taxable income!

The scope of definition of ‘income’ u/s.2(24) was widened by the Finance Act, 2004 by providing that ‘income’ would also include any sum referred to in Section 56(2)(v). Section 56(2)(v) was introduced to provide that, “where any sum of money exceeding Rs.25,000 is received without consideration by an Individual or HUF from any person on or after the 1st September, 2004, the whole of such sum shall be chargeable to tax as Income from Other Sources.”

However, with effect from 1st April, 2006, it came to be provided vide Section 56(2)(vi) that such receipts from one or more persons aggregating to more than Rs.50,000 in a financial year shall be treated as income in the hands of the recipient individual or HUF. (more…)

TAX FREE DIWALI GIFT FOR YOUR EMPLOYEES!

Gift Below Rs.5,000 on any Ceremonial Occasion

Treated as a Tax Free Perk for the Salaried

“If you give what can be taken, you are not really giving,” quoted the noted Sufi author Idries. If you as an employer are trying to think of giving something to your employees during the coming festive season, out of which even the Taxman cannot take anything, here is a smart idea! (more…)

Perk up your Employee’s Diwali with a Tax-free Gift!

Gift Below Rs.5,000 On Ceremonial Occasion

Treated As Tax Free Perk Under I.T. Rules

“If you give what can be taken, you are not really giving,” quoted the noted Sufi author Idries. Trying to think of giving something to your employees during the coming festive season, out of which even the Taxman cannot take anything? Here is a smart idea!

(more…)

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