Property or money received from certain relatives is exempt from tax
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I had bought shares for about Rs2 lakh in the 2004-08 period. Their value is around Rs3.5 lakh now. I want to gift these to my daughter, who is 24 years old. Should I sell the shares and gift her the money, or should I gift her the shares directly? What would be beneficial in terms of taxation for both of us?
If an individual receives any property (other than immovable property) or money from any person during a financial year (FY) without consideration, the fair market value (FMV) or aggregate value of which exceeds Rs50,000, the FMV or aggregate value of money shall be taxable under the head ‘income from other sources’. The FMV will have to be calculated as per the specified method prescribed in Rule 11UA of the Income tax Rules, 1962.
An exemption is available if the property or money is received from a relative, who include, among others, the individual’s parents. Accordingly, there should not be any tax implications in your daughter’s hands in respect of the gift received in form of shares or money (i.e., resulting from sale of shares by you). You shall also not be taxed on the above gift transaction.
If you sell the shares and then propose to gift the money, depending upon the period of holding, and whether securities transaction tax has been paid at the time of sale, there may be tax implications and accordingly, you may be required to pay tax on the capital gain resulting from sale of these shares.
If you gift the shares to your daughter, who is a major (above 18 years of age), any subsequent income from sale of shares or interest from investment of money shall be taxable in your daughter’s hands only as ‘capital gains’ or ‘income from other sources’ depending on the nature of income.
If the shares are sold on a recognised stock exchange either by you or your daughter, there will be no capital gains tax implications.
With respect to the above transaction, it would be advisable to have documentation in place to substantiate the genuineness of the gift transaction.
Bank balance in an account in India is exempt from Wealth Tax Act, 1957, without any limit. But what about the bank balance in an account abroad? How to value immovable property located abroad under this Act?
—Naresh Bhagwanji Desai
The wealth tax Act has been abolished effective from FY16. Accordingly, you would not be required to pay wealth tax on erstwhile specified assets. But from FY16 onwards, if an individual’s total income exceeds Rs50 lakh during the relevant FY, he is mandatorily required to disclose cost of specified assets as on 31 March in his India tax return under the Schedule AL. The specified assets include land, building, cash in hand, jewellery, bullion, vehicles, yachts, boats and aircraft.
If you qualify as ordinarily resident (OR) of India and your total income exceeds Rs50 lakh, you would be required to disclose cost of aforesaid assets (in or outside India). If you qualify either as non-resident or not ordinarily resident of India and your total income exceeds Rs50 lakh, you would be required to disclose cost of these assets in your India tax return. If you qualify as OR, you have to disclose details of overseas bank account (i.e., name of bank, account number and peak balance in account held), overseas property (acquisition date, purchase cost, address), and overseas investments in the foreign asset schedule.
Parizad Sirwalla is partner (tax), KPMG.
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