Present tense
Don’t be overjoyed if you get a huge monetary gift from your friend. If the aggregate amount received from ‘unrelated parties’ exceeds Rs 50,000, you are liable to pay tax.
By Hema Ramakrishnan, TNN |
Don’t be overjoyed if you get a huge monetary gift from your friend. If the aggregate amount received from ‘unrelated parties’ exceeds Rs 50,000, you are liable to pay tax.
Individuals who have escaped paying income tax over the past two-and-a-half years by splitting gifts received in cash from friends will no longer enjoy this benefit. They will have to pay tax if the aggregate amount received from such ‘unrelated parties’ exceeds Rs 50,000. The liability will accrue from assessment year (AY) ’07-08 — or FY07 — following changes in the income tax legislation last week.
From September 1, ’04, individuals receiving gifts in cash of over Rs 25,000 — known as money received without consideration, in technical parlance — from an unrelated party had to include this amount in their total income and pay tax at the applicable rates.
They could, however, escape tax if they received amounts less than Rs 25,000 from different people. For instance, an individual could receive Rs 20,000 each from three friends and yet not pay tax. There was no obligation to pay tax because the amount received from each person was less than the threshold of Rs 25,000.
The government plugged this loophole in the Taxation Law Amendment Bill, which has now become a statute. The exemption limit has now been raised to Rs 50,000 in aggregate from all sources. This means that even if small amounts of cash are received as gifts, the aggregate sum should not exceed Rs 50,000.
If it does, the amount will have to be included as income from other sources and tax will have to be paid at the normal applicable rates. The amendment kicks in from AY08 (or FY07) and subsequent years.
However, this provision will not apply to gifts in kind. “Receipt of gifts in the form of, say, jewellery, shares or other such items in kind from unrelated parties will not attract tax under this provision,” says Daksha Baxi, senior associate, international taxes, Nishith Desai & Associates.
The good news for tax-payers is that the income tax law has been amended retrospectively to exclude several receipts, which are not in the nature of income, from the tax net. The exclusion list covers amounts received from a charitable trust or a hospital.
So, individuals who received over Rs 25,000 from a charitable trust or a hospital in the past (between September 1, ’04 and April 1, ’06) do not have to pay tax on these receipts. The amendment will apply for AY06 and subsequent years. A refund can be claimed if tax has already been paid for AY06. Those filing income tax returns for AY07 will not have to include such receipts as income from other sources.
Going by the amendments, payments received from a local authority or from any fund, foundation, university or other educational institutions, or any hospital or any other medical institution, or any trust under Section 10 (23C) or a trust or institution registered under Section 12AA, have been excluded from the scope of income and hence, will not be liable to tax.
Amounts received from any relative, money received during marriage, amounts received under a will or by way of inheritance, and amounts received in contemplation of death of the payer, are not included in the tax net.
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