Presents are taxable underneath the Earnings Tax Act, except they fall underneath the class of exemption. Therefore, presents ought to be duly disclosed within the earnings tax return.
Earlier presents got solely on essential events. Now presents are used as a instrument for income-tax planning. There are a number of occasions after we obtain presents from our members of the family or pals. Many individuals consider that the presents obtained out of affection and affection are exempt from tax and don’t disclose the identical within the earnings tax return (ITR). Nevertheless, this isn’t the proper pattern.
Presents are taxable underneath the Earnings Tax Act, except they fall underneath the class of exemption. Therefore, presents ought to be duly disclosed in ITR and taxes ought to be paid on them in the event that they aren’t exempt within the arms of receiver. The non-disclosure of presents might entice penalty which ranges from 50% to 200% of tax payable on earnings sought to be evaded.
The taxability of presents will be divided into two classes, i.e., presents obtained from employer and presents obtained from others.
Presents Acquired from Employer
There are situations when employers present a present to the worker on ceremonial event or to spice up their morale or once they carry out excellently. An worker is liable to be assessed for presents obtained from the employer provided that the worth of such present is Rs 5,000 or extra. Presents under Rs 5,000 in mixture throughout the monetary yr are exempt from tax. These presents are taxable as perquisites underneath the top ‘Earnings from Wage’.
Presents Acquired from Others
Presents obtained from any individual, aside from an employer, are handled as per provisions of Part 56 of the Earnings-Tax Act. Such presents are taxable underneath the top ‘Earnings from Different Sources’ in the event that they don’t fall within the exempt classes. The earnings tax legislation classifies presents into three classes, i.e., Presents within the type of Cash, presents within the type of Immovable Property or presents within the type of movable property.
These presents are exempt from tax if they’re obtained from specified kin or on specified events. A number of the events whereby the presents are exempt from tax are talked about under:
1. Presents obtained by a person from specified shut kin (checklist given under)
2. Presents obtained every so often of marriage of taxpayer
3. Presents underneath a Will or by inheritance.
4. Presents in contemplation of dying of the donor.
5. Presents from a registered belief or establishment
6. Distribution of belongings on the time of complete or partial partition of HUF.
Record of Kin:
The next individuals will not be deemed as ‘kin’ for the aim of receiving tax-free presents:
Presents within the type of money or cheque, which don’t fall in exempt class, could be chargeable to tax if the worth of such presents exceeds Rs 50,000 in mixture. The entire of the mixture quantity is chargeable to tax and never the quantity in extra of Rs 50,000.
Presents within the type of immovable property, i.e., land or constructing, shall be charged to tax if the web profit accruing to the recipient is Rs 50,000 or extra. If immovable property is obtained with out consideration and the stamp responsibility worth of the property exceeds Rs 50,000, the stamp responsibility worth of such property shall be chargeable to tax. If immovable property is obtained for a consideration however the precise value of acquisition (gross sales consideration) is lower than the stamp responsibility worth of the property by an quantity exceeding Rs 50,000, then the distinction between stamp responsibility worth and consideration is chargeable to tax.
The final class is present of specified movable property, inter-alia, shares, securities, jewelry, archaeological collections, drawings, work, sculptures and any murals, or bullion. Just like immovable properties, if the taxpayer receives present of such movable property or buys them at a value lesser than its honest market worth, the worth of advantages so obtained shall be taxable within the arms of the recipient.
If the mixture honest market worth of movable properties obtained with out consideration throughout the earlier yr exceeds Rs. 50,000, the entire of the mixture honest market worth of movable properties shall be chargeable to tax. If the movable property is bought for a consideration which is lower than the mixture honest market worth of the property by an quantity exceeding Rs. 50,000, then the distinction between mixture honest market worth and the consideration is chargeable to tax.
It’s worthwhile to say that present of a movable property which isn’t a specified property shall not be lined underneath this provision, i.e., present of motor automobile by a good friend, valued Rs 5,00,000, shouldn’t be taxable as the identical shouldn’t be lined underneath the definition of movable property underneath the Earnings Tax Act.
Disclosure of Presents within the Earnings-Tax Returns
The presents shall be disclosed as taxable earnings within the ITR underneath the Schedule Wage or Schedule OS, relying upon the character of the present.
It’s advisable that the presents that are particularly exempt from the tax ought to be disclosed in Schedule EI of the ITR.
(By CA Naveen Wadhwa, DGM, and CA Tarun Kumar, Assistant Supervisor, Taxmann.com)
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