Photo: iStock
Photo: iStock

Gift from employer, exceeding Rs5,000, is taxable and tax is to be withheld from salary

Any gift received from the employer, of a sum exceeding Rs5,000, is treated as taxable compensation in your hands

I received a cheque of Rs21,000 from my company on the occasion of my wedding. Will that be taxable or will it be tax exempt? There was no agreement or contact with the company for this payment and this was not a part of my service contract. Also, this gift is extended to all employees.

—Name withheld on request

Any gift received from the employer, of a sum exceeding Rs5,000, is treated as taxable compensation in your hands [as per Section 17(2)(viii) of the Income Tax Act, 1961 read with Rule 3(7)(iv) of the Income Tax Rules, 1962]. Your employer is required to withhold taxes from your salary in respect of such a gift.

My grandfather built a house in 1955 in Allahabad (Uttar Pradesh) whose current market value should be around Rs1 crore. He had a son and a daughter. But he and his son (my father) didn’t get along, so he willed the house to me. My grandfather passed away in 1998 when I was minor, now the house is in my name.

I am well settled and don’t need that house. I’m thinking of transferring it to my sister who is my only sibling. Will there be any tax implications on her or me if I do so? Also what is the process of transferring? I’m employed in a private firm while my sister is a government employee and both of us are regular income-tax payers.

—Name withheld on request

The gifting of property between siblings would not give rise to an income tax liability to either the giver or the receiver. It would be advisable for you to document the gift in a legal document, that is, a gift deed and place it in your records. You will need to evaluate any stamp duty implications arising from the gifting of this property.

However, any subsequent sale of the property by your sister would be taxable in her hands as long-term capital gains. When the capital gain is being computed, the period of holding is reckoned from the period of holding by your grandfather and will also include the period the property was held by you as well, since the property that is gifted is inherited. Also, the cost at which your grandfather acquired the land, as increased by any cost of improvement incurred (by him or yourself, as the case may be), would be treated as the cost of acquisition in order to compute the capital gains. Since the property had been acquired by your grandfather prior to 1 April 2001, your sister will have the option of considering the fair market value as on 1 April 2001 as the cost of acquisition. Such cost of acquisition and improvement, if any, would then be adjusted for inflation between the year of sale and 1 April 2001, by applying the cost inflation indices notified by the tax authorities.

I am a senior citizen holding a Public Provident Fund (PPF) account. After completion of 15 years, I renewed it for another 5 years and now the account is maturing in March 2018: after completion of 20 years. Is it permitted to renew it for another term of 5 years and if yes, will I continue to enjoy the benefit of deduction under Section 80 C of the income-tax Act for the annual contributions.

Alternatively if after the term of 20 years I opt not renew it further then can I continue to retain the account and get both the above benefits?

After retirement, if I do not withdraw the entire provident fund (PF) amount and retain it for a couple of years, will I continue to earn tax-free interest?

—A.Venkateshwaran

Assuming that you continue to be resident in India, you are eligible to extend your PPF account for a further block of 5 years, either with or without further deposits. You will need to exercise this option within 1 financial year of the maturity of your PPF account. The deposits made by you into the extended PPF account, capped to Rs1.5 lakh, can be claimed as a deduction under section 80C of the Income-tax Act, 1961. Further, the interest earned in the account will continue to be exempt from tax.

Where you do not make further deposits into the PPF account, you will continue to earn interest at the applicable rate on the balance in your PPF account.

On your second query, assuming you have contributed to PF for over 5 years, the interest earned in your PF account until your retirement is exempt from tax. Any interest earned by you after the date of your retirement would be taxable, as per recent judicial precedent.

If a bank account is opened in a minor’s name, will the interest earned on the deposit be taxed as it is for others? I also have a joint account with my mother. I am a co-holder only for administrative purpose. She deposits and withdraws money on her own. Will the interest on this account be taxed in my name, or her name, or both of us?

—Vaidehi Sahay

We have presumed that you have two queries - one relating to taxation of interest on your minor child’s account and the second query is relating to taxation of interest on bank account where you are only a co-holder with your mother as the first holder.

In respect of your first query, the interest earned on deposits made by you, in your minor child’s account will need to be added to your taxable income. An exemption can be claimed by you in respect of this clubbed income (not exceeding Rs.1,500 per annum or the actual amount of income).

In respect of your second query, we understand that your mother is the primary holder of the joint account, the funds belong to her and you are only a nominal co-owner.

Accordingly, the income from such bank interest should be liable to taxed in the hands of your mother.

Parizad Sirwalla is partner (tax), KPMG.

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