I had gifted a few stocks of an Indian listed company, bought by me in 2014, to my mother on her birthday in July 2016. She sold these in January 2017 as she was not well versed with the workings of the equity market. Will she be taxed for this?
If an individual receives any property (other than immovable property), from any person during a financial year (FY) without consideration, the fair market value of which exceeds Rs50,000, the transaction will be taxable under the head ‘income from other sources’.
An exemption is available if it is received from a relative, which includes a son or a daughter.
Accordingly, the shares received by your mother from you as gift shall not be taxable in her hands.
But there may be capital gains tax implications upon subsequent sale in her hands. We have assumed that the shares have been transacted through a recognised Indian stock exchange and were, therefore, liable to securities transaction tax (STT).
In case of gifted assets, the period of holding is counted from the date of purchase by the owner who has actually acquired the asset (other than by way of gift or inheritance).
As you had originally acquired the shares, the period of holding will be from the date you bought them.
Also, in case of gift, the cost of acquisition shall be the cost at which the previous owner, who actually acquired the asset (other than by way of gift or inheritance).
The cost at which you acquired the shares shall be considered as the cost of acquisition while computing capital gains.
As your mother had sold the shares after holding for more than 12 months from the acquisition date, the gains, if any, resulting from the sale of shares will be termed as long-term capital gains (LTCG) in her hands.
The LTCG from sale of listed shares liable to STT are exempt from tax, as per section 10(38) of the Income-tax Act, 1961. The amount of tax exemption should be disclosed in your mother’s personal tax return to be compliant from disclosure perspective.
Further, as per the recent amendment applicable from FY17 onwards, tax return filing has been made mandatory in respect of taxpayers with exempt LTCG arising from equity shares or equity-oriented mutual funds (where such exempt income and other income exceeds applicable income slab threshold).
I have a query regarding income tax. This year I had worked abroad for 2 months as part of my assignment to the UK and my company had put me on UK’s payroll and I was paid salary (not per diem). After completion of the project, I joined back on India payroll. Is this taxable? If yes, where do I show this in my India tax return for this financial year?
The taxability of income earned would depend upon your tax residential status in India during FY17.
Your residential status, in turn, would be determined by your physical presence in India during FY17 and immediately preceding seven FYs (i.e., 1 April 2009 to 31 March 2016).
Assuming that you have been primarily based in India and have worked outside India for only 2 months, you are likely to qualify as ordinarily resident (OR) of India for FY17. Accordingly, your global income shall be taxable in India irrespective of source or place of receipt of such income.
This is subject to the benefits, if any, available under the Double Tax Avoidance Agreement (DTAA) between India and the UK.
Taxability of salary received in the UK:
As you are likely to qualify as an OR, the salary earned in the UK for rendering services there will be taxable in India. If you would have paid any taxes in the UK on the said income, you can avail a foreign tax credit (i.e., a relief) under DTAA, subject to the specified conditions laid down in this treaty.
Disclosure of overseas asset and foreign salary:
As an OR, if you have any assets located outside India (such as foreign bank accounts, immovable properties, investment in shares and mutual funds), you would be required to furnish specified details of the foreign assets (FAs) in your personal income-tax return in schedule FA, respectively.
Further, as an OR, if you would be claiming the aforesaid relief under the DTAA, you will have to fill ITR 2. The salary pertaining to your UK assignment has to be reported in the schedule FSI.
The aforesaid relief availed against the tax payable in India on the UK-earned salary under the DTAA would be required to be reported in the schedule TR (tax relief) and schedule FA.
If your total income during FY17 exceeds Rs50 lakh, you will have to disclose the total assets and liabilities in schedule AL (asset-liability) in your personal tax return.
You may furnish details of your UK salary and benefits or perquisites such as rent-free accommodation, provided by the UK employer to your Indian employer in prescribed Form 12B.
In such a case, Indian employer would deduct appropriate taxes after considering both the salaries earned in India as well as the UK.
If you do not furnish Form 12B to your Indian employer, you would have to pay taxes on your UK salary through advance tax route as per specified instalments during FY17, or by way of self-assessment tax at the time of filing your return of income.
Please note that salary would also include any taxable benefits or perquisites such as rent-free accommodation provided by the employer.
Parizad Sirwalla is partner (tax), KPMG.
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