CA Preksha Choraria
Any receipt without consideration or receipt with inadequate consideration from relatives (as defined under Income Tax Act) is not taxable. However, certain receipt without consideration or receipt with inadequate consideration even from non-relatives is not taxable. This can be very effectively used as a tool for tax planning.
Here, receipt without consideration or receipt with inadequate consideration includes receipt of cash, movable and immovable property. As per the Explanation provided u/s 56(2)(vii), Property means the following Capital Asset (as defined u/s 2(14)) of the assessee namely:-
a. immovable property being land or building or both;
b. shares and securities;
d. archaeological collections;
h. any work of art;[or]
Thus, receipt of above Capital Asset by Individual or HUF as gift will attract Income Tax u/s 56(2)(vii).
Gift from relatives is not at all taxable under Income Tax Act,1961 but in following cases gift from Non-Relatives is also not taxable:-
1. Gift in cash(includes cheque and draft) from Non-relatives :-
In country like India, where we celebrate festivals almost every week, family function almost every month on occasion of birthdays, anniversaries etc., receipt of cash from non-relatives on these occasion is very common. Aggregate cash gift received in Previous Year (as defined u/s3 of Income Tax Act) from non-relatives will not be taxable if the amount does not exceed Rs.50,000/-.
|Cash gifts from-||Case-A||Case-B|
|Total receipts during the Previous Year||50,000||50,001|
|Taxability||Not Taxable||Fully Taxable|
Thus, even a single rupee received in excess of Rs.50,000 will make the whole amount taxable.
2. Gift in the form of Movable Property without consideration from Non-relatives :-
Movable Property received by Individual or HUF from anybody (non-relatives) without consideration, will not be taxable if aggregate of Fair Market Value of property received in Previous Year does not exceed Rs.50,000.
|Property received from-||Type of Property||Case-A||Case-B|
|Total receipts during the Previous Year||50,000||51,000|
|Taxability||Not Taxable||Fully Taxable|
3. Gift in the form of Movable Property for inadequate consideration from Non-relatives :-
Movable Property received by Individual or HUF from anybody (non-relatives) for inadequate consideration, will not be taxable if aggregate of the difference between Fair Market Value of property received in the Previous Year and Consideration actually paid by the recipient in the Previous Year does not exceed Rs.50,000.
|Property received from-||Type of Property||Fair Market Value (Rs.)
|Consideration actually paid by the recipient (Rs.) (B)||Difference (Rs.)
|Total receipts during the Previous Year||50,000|
4. Gift on occasion of marriage:-
On occasion of marriage an Individual can receive gifts of any amount from anybody i.e. there is no limit on the amount of gift received. E.g. Mr. Rahul close friend of Miss Sonia gifts Miss Sonia on her wedding flat worth Rs.25,00,000. This transaction is not at all taxable, as gift, in the hands of Sonia. Further, Mrs. Sonia gets divorced and remarries Mr.Rajeev, Mr.Rahul gifts her this time Gold worth Rs.25,00,000. Again this transaction is also not taxable in the hands of Miss Sonia as gifts received on re-marriage (after getting legally separated from former husband) are also not taxable. Thus, marriages can be said to be the best tool for tax planning!!!!
5. Gift by will/Gift on contemplation of death of payer:-
Any property or cash received by will or on contemplation of death of payer is not taxable.
6. Gift of property other than Capital Assets:-
Suppose an individual or HUF receives following assets as gift:-
a. Mobile Phone
b. Agricultural land
c. Wrist Watch
e. ‘Khandarh’- Building in dilapidated condition etc. (Baladin v. Lakahan Singh AIR 1927 All.214)
The above gifts from non-relatives will not be taxable as the same are not covered in the definition of Capital Asset. E.g. Mr. Narendra provides professional service to clients. From one client he receives no consideration but gets a Phone worth Rs.60,000 as gift. Treating it as gift it will not be taxable.
Note:- Gift from employer to employee will be taxable under the head salary as perquisite.
*Benefit Derived out of the above provisions:
Thus, in a year an individual can receive minimum income/receipts of Rs.1,50,000 from non-relatives without paying tax. Joint families can get maximum benefits out of these provisions.
E.g. Mr. Vadra gets following gifts from Non-relatives.
|Cash gift from-||Amount(Rs.)|
|Movable Property-(Inadequate consideration)|
Further, if Mr. Vadra has formed his HUF then HUF can again get minimum benefit of Rs.1,50,000. Thus, joint families can form many sub-HUF for tax planning purpose.