In India, among the many frequent modes of swap of property and cash is through a present. A present may presumably be a swap of movable or immovable property or swap of cash from the giver to the recipient.
Gifting is generally used to alter property or cash all by the household or to kinfolk through will or inheritance. Nonetheless, reward has furthermore been used as a medium to evade taxes as a consequence of which the federal authorities had launched the Reward Tax Act, 1958 (GTA) to curb tax evasion actions. GTA was later repealed and the incidence of tax was comprehensively built-in contained in the Earnings-tax Act, 1961 (ITA) to ensure that bogus transactions are usually not carried out with the one purpose of tax avoidance.
As per the ITA, sum of money exceeding Rs 50,000 acquired with out consideration is topic to tax as earnings from completely totally different sources contained in the palms of the recipient. Equally, if an immovable property having stamp obligation worth in additional of Rs 50,000 or a movable property paying homage to shares of a company or jewelry or murals and so forth. having truthful market worth in additional of Rs 50,000 is acquired with out consideration, the same is topic to tax contained in the palms of the recipient. Such earnings is taxable at associated tax costs contained in the yr of receipt. Nonetheless, the ITA furthermore specifies sure programs of transactions which aren’t lined underneath the ambit of taxation and this may be very wanted for a recipient of the reward to confirm whether or not or not or not or not the reward acquired by him is topic to tax.
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Whereas a sure transaction could also be precise and free from tax incidence, given the worth which will probably be concerned, there may be each likelihood that the tax authorities would possibly query the validity of the transaction and ask for proof to substantiate that the same shouldn’t be topic to tax.
As an illustration, say you have bought gotten acquired Rs 3 lakh in money in your marriage ceremony ceremony through reward collectively from 300 agency and likewise you identify to deposit the same into your checking account. As per the reporting norms, the financial institution could also be required to report this money deposit with the tax authorities. The tax authorities would possibly query the provision of money receipt to ensure that this isn’t an undisclosed earnings which may have fetched tax earnings for the authorities.
Although the ITA considerably affords that any sum of cash acquired on the event of marriage of a person is to not be handled as his/her earnings, the query arises as to how will you justify that such money was really acquired on the event of marriage. In such a case, it could possibly be helpful to deal with a digital or info register of agency and keep in mind down the sum of cash gifted by every. This can be utilized as a proof to justify to the tax authorities the genuineness of the money deposit made by you contained in the financial institution.
One totally different such event is receipt of cash out of your kinfolk which is particularly excluded from the ambit of taxation. In case your relative transfers a sum of Rs 10 lakh to your checking account, you would possibly have to justify the provision of the cash to the tax authorities. It could possibly be prudent to execute a reward deed which acts as documentary proof for the receipt of reward by the recipient. When an immovable property is transferred as a present, it’s obligatory to execute a present deed. The same mechanism may presumably be adopted to substantiate receipt of cash from the relative inside the present event. Completely totally different paperwork paying homage to your financial institution assertion or copy of cheque acquired and so forth. can also be maintained.
Property or cash acquired underneath a will or through inheritance shouldn’t be topic to tax contained in the palms of the recipient. If an immovable property is acquired underneath a will, the recipient should attempt to receive real purchaser’s settlement of the property, particulars and back-up of sums paid to construct up the property by the distinctive purchaser (giver of reward) and a replica of the need which is able to act as proof in case any queries are raised by the tax authorities.
Given the elevated scrutiny by the tax authorities, the giver and recipient of the reward ought to teach due warning to safeguard themselves from any enquiry. Whereas the paperwork to be maintained for every reward acquired would differ as per the character of transaction, it’s prudent to deal with related information to justify the genuineness of the transaction.
(The author is Tax Companion, Folks Advisory Firms, EY India)
(Views expressed are personal)