Tax Speak: Not each reward is exempt from tax

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Whereas all financial items are lined, the Act restricts its scope in case of the non-monetary items solely to land, constructing, shares and securities, jewelry, archaeological collections, drawings, work, sculptures, any murals and bullion.

By Shailesh Kumar

With the abolishment of reward tax in India, earnings tax provisions had been launched vide Finance Act, 2004 to tax sure reward transactions. Initially, the earnings tax provisions for taxation of items had been restricted to items obtained by people and HUFs. Nevertheless, additional tightening the noose, provisions for taxation of items had been revamped vide Finance Act 2017 and had been made relevant to any sum of cash and/or sure movable and immovable property obtained by any individual (together with an organization, agency, AOP/BOI) with out/ for insufficient consideration.

Tax on items
Whereas all financial items are lined, the Act restricts its scope in case of the non-monetary items solely to land, constructing, shares and securities, jewelry, archaeological collections, drawings, work, sculptures, any murals and bullion.

Any sum of cash obtained in extra of Rs 50,000 in mixture by an individual throughout a monetary 12 months is taxable within the palms of the receiver. What’s to be famous right here is that the exemption restrict is to be checked by aggregating all sources from which cash is obtained by such an individual. For instance, particular person A receives Rs 21,000 from B, Rs 31,000 from C and Rs 5,100 from D.

Since in mixture A has obtained Rs 57,100 which is above the brink of Rs 50,000, such mixture sum obtained as reward shall be taxed within the palms of A although individually no quantity exceeds the exemption restrict of Rs 50,000. It might even be famous that after the mixture restrict of Rs 50,000 is breached, then your complete mixture quantity is taxed and never merely the quantity exceeding Rs 50,000. So, on this instance, your complete quantity of Rs 57,100 shall be taxed within the palms of A.

However, the place the reward is obtained within the type of non-monetary property, resembling immovable property or specified movable property, as talked about above, taxability is determined on the idea stamp obligation worth for immovable property and honest market worth (FMV) in different instances. A present being with out consideration, the place stamp obligation worth in case of immovable property and FMV in case of movable property exceeds Rs 50,000, such stamp obligation worth or FMV shall be taxed in palms of the recipient.

Insufficient consideration
Nevertheless, if property is obtained by taxpayer in change of insufficient consideration then, within the case of immovable property, if distinction between stamp obligation worth and buy worth is in extra of upper of `50,000 and 10% of the acquisition worth, such distinction between stamp obligation worth and buy worth is taxed in palms of the receiver. If some other specified movable property is obtained for insufficient consideration, then extra of FMV over the consideration paid is taxed within the palms of the receiver, if such distinction is greater than `50,000.
There are particular conditions the place items usually are not topic to earnings tax resembling the place cash or property is obtained from a relative, every so often of 1’s marriage, below a will or by means of inheritance, dying of a donor, and many others. The time period ‘relative’ is outlined, which incorporates partner, brothers, sisters, dad and mom, lineal ascendants/ descendants of taxpayer and partner, and many others.

All items whether or not obtained from relative or non-relative every so often of marriage are exempt from tax. However items from non-relative on events aside from marriage like birthday, anniversary, and many others., shall be exempt provided that such sum doesn’t exceed the mixture threshold of Rs 50,000 in a 12 months.

The author is associate, Nangia & Co LLP

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