An amount gifted to a relative will be free of income tax

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: I am salaried and have an option to park my surplus cash in VPF at 8.5%. My retirement is 10 years away. Which one will be better for me, BNB or VPF?

—Tridiv Dutta

Whereas VPF will give you 8.5% tax-free, BNB will earn you 8.41% after tax. So both options are equally good, but since you already have a substantial amount in VPF, one would suggest going in for BNB.

I intend to make a gift of Rs 2 lakh to my nephew. In this regard, my questions are

1) What will the tax treatment of this gift be on me as well as my nephew?

1) What is the procedure to be followed while giving gifts to relatives?

2) Is any gift deed to be prepared? If yes, what is the stamp duty applicable?

3) Is the gift deed required to be registered? If yes, with which authorities?

—Vijay Mogare

There will be no tax incidence of the transaction on either you or your nephew. This is in view of the provisions of Sec 56 of the Income Tax Act that exempts gifts given to a relative. As per the definition provided in the said section, your nephew will qualify to be your relative and hence any amount gifted to him will be free of income tax.

As regards the procedure, generally, it is better to prepare a gift deed and get it registered (with related stamp duty) but such a precaution is normally needed in the case of high-value gifts, particularly those of real estate. For our purposes, all that is required is an offer by the donor and acceptance thereof by the recipient carried out in black and white.

In other words, the donor can offer the gift and the recipient should accept the same in writing (maybe through a thank you note). Only then it would be considered as a gift in India. It is preferable to mention the relationship between the donor and the recipient and both parties concerned should keep this document on file for ready reference whenever needed.

How are short-term capital gains computed on the daily dividend option of liquid funds? Is there any tax liability on the appreciation in the principal amount at the time of redemption? Will the case be different in case it is an equity fund rather than a liquid fund?

—Kirti Chhaya