With regards to gifting, who all come under the definition of relatives in the income-tax Act?
Under section 56 of the Income-tax Act, 1961 (the Act), money exceeding Rs.50,000 or immovable or movable property received by an individual during the financial year (FY) without or inadequate consideration, and if its stamp duty value or fair market value, exceeds Rs.50,000, the same is taxed under the head “income from other sources” in the hands of the recipient.
However, an exemption is allowed if the aforesaid sum of money or property is received from a relative. In the context of an individual, “relative” has been defined to include: 1) Spouse; 2) Brothers or Sisters; 3) Brother or Sister of the spouse of the individual; 4) Brother or sister of either of the parents; 5) lineal ascendant or descendant of the individual; 6) lineal ascendant or descendant of the spouse of the individual; and 7) spouse of the person referred to in (2) to (6) above.
Any subsequent income from investment of money or letting out a property or from sale of the said property shall be taxable in the hands of the recipient depending on the nature of income.
Will I get a tax benefit if I renovate my house (without taking any loan)?
The expenses incurred on renovation of a self-occupied property do not qualify for tax benefit or deduction. Further, for a let out property or deemed let out property, since the standard deduction of 30% includes expenses towards renovation, there is no additional deduction or tax benefit towards renovation. Since you have not availed any loan for renovation, you cannot claim deduction in this respect.
If renovation expenses are incurred to increase the value of a capital asset, same could be considered as “cost of improvement”. Based on judicial precedents, expenses should be capital in nature and incurred to increase the life of the asset. Mere repairs or improvements will not be considered as cost of improvement.
If you incur any renovation expenses that are in nature of capital expenditure and specifically incurred in making additions or alterations to result in overall enhancement in the life or value of the property, then those can be considered as cost of improvement. If at any time, you propose to sell the aforesaid property, while computing capital gains the above mentioned expenses, which can be considered as cost of improvement along with cost of purchase of asset, can be reduced from the sales proceeds to determine taxable capital gains. Further, if the property has been held for more than 36 months from acquisition date, you can also claim the benefit of indexation. This can be done by multiplying the cost of improvement of property by the notified cost inflation index (CII) for the year of sale and dividing by the CII of the FY in which the renovation expenses are incurred.
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