Mukesh Patel.in
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international tax expert / columnist / author / speaker

THE MAGIC WAND OF INDEXATION!

Gujarat High Court holds capital gains on gifted or inherited assets also enjoy indexation from date of original holding!

Section 49(1) of the Income-tax Act provides that where the capital asset has been acquired by the taxpayer in any of the modes such as on partition of a Hindu Undivided Family or under gift or Will or by succession or inheritance, etc., the cost to the previous owner shall be deemed to be cost of acquisition of the taxpayer.

Similarly, Section 2(42A) provides that where a capital asset is acquired by way of gift or inheritance as mentioned in Section 49(1), period of holding of the previous owner shall also be included in the period of holding of the taxpayer.

In the above context, an interesting question that would arise for consideration is whether while computing the taxable capital gains arising on transfer of a capital asset acquired by a taxpayer under gift or inheritance, the ‘indexed cost of acquisition,’ as per the provisions of Section 48, has to be computed with reference to the year in which the previous owner first held the asset or the year in which the taxpayer became the owner of the asset.

Consider a case where your grandfather had acquired a plot of land for Rs.20 lakhs in late 1981, which you received by way of inheritance on his death in 2013 and you were planning to sell the same in early 2014 for a consideration of Rs.1.80 crore. Guess, what would be the income-tax you would be required to pay on your capital gains? Difficult to believe, but ‘zero tax’ is the correct answer. (more…)

GIFT OF BMW NOT TAXABLE?

With only nine gifts in kind covered in the specified list, you can still enjoy receiving many more tax-free gifts!

Two interesting readers’ queries relating to taxability of gifts as income have been discussed in the write-up today.

TAXABILITY OF GIFTS IN KIND

Query:  I am expecting to receive a BMW car worth Rs.50 lakhs from a dear friend of mine. Would this attract any income-tax liability in my hands?

Reply:  Section 56(2)(vi) of the Income-tax Act as introduced in with effect from 1st April, 2006 had cast income-tax liability 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, the market value of nine specified properties as mentioned hereunder, received as a gift by an Individual or HUF, if exceeding Rs.50,000, is liable to be taxed as income from other sources.

  1. Land and building;

  2. Shares and securities;

  3. Jewellery;

  4. Archaeological collections;

  5. Drawings;

  6. Paintings;

  7. Sculptures;

  8. Any work of art;

  9. Bullion.

 Since motor car is not covered in the list of nine specified properties above, you can safely receive the gift of BMW from your friend, notwithstanding the fact that its value is Rs.50 lakhs. Interestingly, a host of other valuables such as cell phones, computers, electronics, furniture, air tickets, hotel vouchers, etc. have also been kept out of the tax purview and taxpayers can thus enjoy the luxury of receiving such gifts without attracting any liability to income-tax. (more…)

RELIEVING PAIN ON CAPITAL GAIN!

Bombay & Delhi High Courts hold that taxpayers can enjoy indexation even on assets received via gift or inheritance

    If your grandfather had acquired a plot of land for Rs.10,00,000 in late 1981, which you received by way of inheritance on his death in 2012 and you are planning to sell the same in early 2013 for a consideration of Rs.85,00,000, what would be the income-tax you would be required to pay on your capital gains? Difficult to believe, but ‘zero tax’ is the correct answer.

GAIN COMPUTATION OF GIFTED & INHERITED ASSETS

Section 49(1) of the Income-tax Act provides that where the capital asset has been acquired by the taxpayer in any of the modes such as on partition of a Hindu Undivided Family or under gift or will or by succession or inheritance, etc., the cost to the previous owner shall be deemed to be cost of acquisition of the taxpayer.

Similarly, Section 2(42A) provides that where a capital asset is acquired by way of gift or inheritance as mentioned in Section 49(1), period of holding of the previous owner shall also be included in the period of holding of the taxpayer. (more…)

HUF GIFTS NOW FREE FROM TAX!

As per the 2012 amendment effective from 1st October, 2009 in case of an HUF, its member shall be treated as a relative!

                 The scope of definition of ‘income’ u/s. 2(24) was widened by the Finance Act, 2004 by providing that ‘income’ would now 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.

                 In the above regard, exceptions have been carved out in respect of any sum of money received from any relative (as defined for purpose of this section) or on the occasion of the marriage of the individual or under a will or by way of inheritance or in contemplation of death of the payer or receipts from any local authority as defined in Section 10(20) or fund, foundation, university, educational institution, hospital or other medical institution referred to under Section 10(23C) or receipt from any trust or institution registered under Section 12AA and accordingly such receipts will be exempt from tax. (more…)

Three More Days Before Your Gifts Get Taxed As Income!

Purchases Below Fair Market Value Also

Trapped In Tax Net From 1st October’09

If your friend had promised you to gift a diamond studded gold watch worth Rs.3 lakhs, encash that promise in three days. Delay may cost you dear, since the receipt of this gift after 30th September, 2009 will be treated as your taxable income, attracting a straight income-tax of Rs.92,700, if you fall in the top tax-bracket of 30.9%.

(more…)

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