In India, among the many many frequent modes of swap of property and money is thru a gift. A gift could presumably be a swap of movable or immovable property or swap of money from the giver to the recipient.
Gifting is usually used to change property or money all by the family or to kinfolk by means of will or inheritance. Nonetheless, reward has moreover 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 GTA was later repealed and the incidence of tax was comprehensively built-in contained within the Earnings-tax Act, 1961 (ITA) to make sure that bogus transactions are often not carried out with the one objective of tax avoidance.
As per the ITA, sum of cash exceeding Rs 50,000 acquired with out consideration is matter to tax as earnings from utterly completely totally different sources contained within the palms of the recipient. Equally, if an immovable property having stamp obligation value in further of Rs 50,000 or a movable property paying homage to shares of an organization or jewellery or murals and so forth. having truthful market value in further of Rs 50,000 is acquired with out consideration, the identical is matter to tax contained within the palms of the recipient. Such earnings is taxable at related tax prices contained within the yr of receipt. Nonetheless, the ITA moreover specifies certain applications of transactions which are not lined beneath the ambit of taxation and this can be very needed for a recipient of the reward to verify whether or not or not or not or not or not the reward acquired by him is matter to tax.
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Whereas a certain transaction may be exact and free from tax incidence, given the value which is able to in all probability be involved, there could also be every probability that the tax authorities might question the validity of the transaction and ask for proof to substantiate that the identical should not be matter to tax.
As an illustration, say you’ve gotten purchased gotten acquired Rs 3 lakh in cash in your bridal ceremony ceremony by means of reward collectively from 300 company and likewise you determine to deposit the identical into your checking account. As per the reporting norms, the monetary establishment may be required to report this cash deposit with the tax authorities. The tax authorities might question the supply of cash receipt to make sure that this is not an undisclosed earnings which can have fetched tax earnings for the authorities.
Though the ITA significantly affords that any sum of money acquired on the occasion of marriage of an individual is to not be dealt with as his/her earnings, the question arises as to how will you justify that such cash was actually acquired on the occasion of marriage. In such a case, it might presumably be useful to cope with a digital or data register of company and be mindful down the sum of money gifted by each. This may be utilized as a proof to justify to the tax authorities the genuineness of the cash deposit made by you contained within the monetary establishment.
One completely totally different such occasion is receipt of money out of your kinfolk which is especially excluded from the ambit of taxation. In case your relative transfers a sum of Rs 10 lakh to your checking account, you might must justify the supply of the money to the tax authorities. It might presumably 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 gift, it is compulsory to execute a gift deed. The identical mechanism could presumably be adopted to substantiate receipt of money from the relative inside the current occasion. Fully completely totally different paperwork paying homage to your monetary establishment assertion or copy of cheque acquired and so forth. may also be maintained.
Property or money acquired beneath a will or by means of inheritance should not be matter to tax contained within the palms of the recipient. If an immovable property is acquired beneath a will, the recipient ought to try to obtain actual purchaser’s settlement of the property, particulars and back-up of sums paid to assemble up the property by the distinctive purchaser (giver of reward) and a reproduction of the necessity which is ready 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 show due warning to safeguard themselves from any enquiry. Whereas the paperwork to be maintained for each reward acquired would differ as per the character of transaction, it is prudent to cope with associated data to justify the genuineness of the transaction.
(The writer is Tax Companion, Of us Advisory Corporations, EY India)
(Views expressed are private)