Interest on minor’s income is added to parent’s total income

An exemption of up to Rs.1,500 per annum or actual amount of income, whichever is lower, shall be available to the parent in whose income the minor’s income is clubbed and offered to tax


iStockPhoto
iStockPhoto

What is the tax implication if I gift Rs.30,000 in cash to my 1-year-old niece?

—Tuhina Bose

Under section 56 of the Income-tax Act, 1961, money exceeding Rs.50,000 received by an individual during a financial year (FY) without consideration, is taxed under the head “income from other sources” in the hands of the recipient. But an exemption is allowed if the cash is received from a relative, which includes, among others, brother or sister of either of the parents. Accordingly, there should not be any tax implication in your or your niece’s hand. But any subsequent income from investment of the money shall be taxable in the hands of the recipient depending on the nature of income. Since your niece is a minor, clubbing provision will apply. Accordingly, the income, if any, from investment of money shall be included in her father’s or mother’s income (whoever earns more) and will have to be offered to tax.

Also, an exemption of up to Rs.1,500 per annum or actual amount of income, whichever is lower, shall be available to the parent in whose income the minor daughter’s income is clubbed and offered to tax.

I have been working for three years now, but have not filed tax returns. Can I file them all now?

—Karunya Pathak

Under the Indian tax law, it is mandatory for an individual whose total income exceeds a specified income threshold or holds assets outside India to file her personal income tax return (ITR) within the applicable due date. ITR filed after the specified date is considered late. The belated ITR for a particular FY could be filed within two years from the end of the relevant FY. Accordingly, you may be able to file a belated ITR for FY15 up to 31 March 2017.

Also, the due date for filing ITR for FY16 is 31 July 2016. You will not be able to file belated ITR for the earlier FYs (up to FY14). If any taxes are payable on the income on which tax is not deducted at source, interest at per specified rates would be applicable. The tax officer may levy a penalty of Rs.5,000 for non-filing of ITR within the specified dates if it’s not filed within a year from the end of the relevant FY.

We have assumed that your employer deducted taxes from your income. With respect to belated tax return, though tax on earned income during an FY has been entirely deducted at source, it has the following shortcomings:

 You cannot subsequently revise the tax return even if you discover an omission or mis-statement in the original tax return filed; and

 The losses incurred in the respective FY (except for house property loss and business loss on account of unabsorbed depreciation and capital expenditure on scientific research) cannot be carried forward to subsequent FYs to offset against corresponding income streams.

The Budget 2016 has proposed to amend the time limit for filing the tax return to one year from the end of the relevant FY.

Queries and views at mintmoney@livemint.com

READ MORE