Gift given by sister, spouse, daughter is tax free

Written by AN Shanbhag | Updated: Dec 29 2008, 03:15am hrs
I am a retired person, 69 years of age with no source of income except interest on a few small FDs. Can my daughter give me a gift or an interest-free loan Could you kindly explain the exact procedure acceptable to the tax authorities and her employer.

C K Saksena

As per the Income Tax Act, any gift given by a daughter to her father would be fully tax-free. Note that there is no tax deduction on the gift per se. To put it differently, the gift will be made by your daughter from her post- tax income. However, the gift transaction will be tax-free for both of you. As far as the procedure is concerned, a simple note from your daughter stating that she is giving you this gift out of her natural love and affection and your reply accepting the same would suffice. This note should be dated (as on the day of the gift) and kept on record. Her employer has no locus standi on how she applies her post-tax income and hence their acceptance to the gift is not relevant.

I am an earning woman and have given some amount to my brother as loan on interest @ 12% p.a. Now I want to give some money (Rs 4 -5 lakh) as gift to his wife. Will the interest received by her when she invests this gift be treated as income or will it be clubbed with my income for tax purposes Is it objectionable from an income-tax point of view

Renu

There are two legs to the transaction that you propose. The first leg is to determine the tax incidence upon the gift and the second one is whether clubbing would be applicable or not on income from the gifted amount. In this regard, as per Section 56 of the Income Tax Act, the gift received by a person from a spouses sister will be tax-free. Secondly, the interest earned by such spouse would not be subject to clubbing. In other words, the interest will be taxable in your brothers wifes name only and not in your hands. As long as the gift is made legitimately, routed through normal banking channels, is out of natural love and affection and not as a means of evading tax, the income tax department will not have any objection.

I have 400 sqft flat at Dahisar. After 20 years, I purchased another 400- sqft flat at Mirra Road for Rs 4 lakh. Both the apartments are for personal use and I get no income from these flats.

1) Am I liable to pay any income tax If yes, then how much

2)Though the Mira Road flat was booked in 1997, It was registered and came into possession in May 2008. When can I sell the flat so that I dont have to pay capital gains tax

Shastri

1) If a person owns two houses, only one of these (any one of his choice) can be treated as self-occupied house and the annual value can be treated as nil. The other will be treated as deemed let-out (even if it is not let out) and annual rent will be treated as income in his hands.

Tax is payable on rental income may not be the actual rent charged. It depends upon several factors like i) Municipal ratable valuation and the city where the property is located such as Delhi, Chennai, Mumbai, Kolkata, etc., ii) Fair rent assessed on the basis of rents fetched by similar properties in the neighbourhood iii) Standard rent applicable to those cities under the Rent Control Acts of respective states, iv) Actual rent and v) Unrealised and irrecoverable rent.

You would get first a deduction from the lease rental of municipal taxes paid and thereafter a standard deduction of 30%. The interest payable on housing loan is also deductible. The resultant figure is to be added to your other income taxable in India.

The stamp duty, registration fee and other expenses incurred for transferring it in the name of the purchaser as well as a part repayment on regular basis of the loan taken from some specified sources is eligible for deduction from income tax u/s 80C.

2) Since you have taken possession in May 2008, you can sell it only after May 2011 to be able to save long-term capital gains tax u/s 54EC. If you sell it earlier, the profit will be treated as your normal income and taxed as such. The house at Dahisar, which was purchased 20 years ago, can be sold any time. If you sell the same before May 2009, the long-term capital gains earned can be set off against the purchase value of the house at Mira Road.

1 . I have given my wife cash gifts on her birthday, our wedding anniversary and on Diwali. So far the total amount aggregates to Rs 1 lakh during the whole year. I desire to know whether she or I will be liable to gift tax

2. Also, if her sister has given a gift cheque for Rs 40,000, whether she or my wife will be liable to tax

Dinesh Sitaldas Menghrajani

1) The interest earned by your wife from investments of Rs 1 lakh will be taxable in your hands throughout.

In the case of the spouse, the income on gifted corpus is clubbable. Once you have paid the tax on this first-stage interest, it becomes her asset. Any income thereon is not clubbed in the hands of the donor. It is taxed in the hands of the donee.

You have given a gift of Rs 1 lakh. If she invests this amount in RBI Savings Bonds she will earn an interest of Rs. 8,000 and you have to include this amount in your income chargeable to tax and pay tax thereon. Suppose she invests the amount in additional bonds, she will earn an interest of Rs 8,000 on the original corpus you have gifted and also Rs 640 on the investment of her interest of Rs. 8,000. You are required to continue paying tax on the amount of Rs 8,000, but not on Rs 640. In other words, you pay tax on the interest earned on the original corpus gifted to her, but the interest on interest is taxable in her hands.

2) The gift given by her sister to her is gift-tax-free. The interest earned by your wife from investments will be taxable in her hands. Her sister is not liable to pay any tax on that income.

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