Cash received as gift from some relatives is tax exempt

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I had gifted Rs.2 lakh to my spouse, with which she bought some shares. Who will pay the capital gains tax on the sale of these shares?

—Kalpesh Dhar

The entire money received by an individual from any person without consideration, the aggregate value of which exceeds Rs.50,000 in a financial year (FY), is taxable as ‘income from other sources’. But an exemption is available if the money is received from a relative, which includes, among others, the spouse of an individual. Thus, the amount of Rs.2 lakh received by your spouse shall not be taxed in her hands.

However, examine the documentation or registration and applicability of stamp duty with respect to this gift.

Further, your spouse had bought shares using the gifted amount. Any transfer of assets to a spouse, without adequate consideration, attracts clubbing provisions. Accordingly, the income accruing to your spouse from the asset transferred, is clubbed with your income and is part of your taxable income.

Therefore, based on the aforesaid clubbing provisions, if the shares are sold then the resulting capital gains shall be taxable in your hands. If your wife re-invests the capital gains in any other income-bearing instrument and earns income on it, then that income shall be taxable in her hands. In this case, clubbing provisions will not be applicable.

My company changed owners last year and our old provident fund (PF) was closed and a new one begun. Will I be taxed on the old PF amount? I have been in this company for 7 years.

—Sudeshna Saha

The cumulative PF balance withdrawn from a recognised PF triggers tax liability, if an employee does not render continuous services for a period of at least 5 years to the employer. While determining the period of continuous service of 5 years, the period of service rendered to the previous employer is also added if the cumulative PF balance maintained with the old employer has been transferred to the PF account of the current employer. Assuming this was your first job, then there was no transfer of accumulated PF balance from a previous employer. In your case, the cumulative period of service with the company is more than 5 years, no tax would be payable on the accumulated PF balance withdrawn in the FY of receipt.

You may also transfer the accumulated PF balance of the old account to the new PF account. If you withdraw the said accumulated PF balance from new PF account, the period of services rendered (i.e., 7 years) while contributing to old PF account, will also be added. Accordingly, since the aggregate period of services is more than 5 years, there will not be any tax implications.

Withdrawal of the PF will be as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, which requires one to have a non-employment period of two months post leaving the job.

[“Source-Livemint”]

No tax benefit if mediclaim premium is paid in cash

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I pay the health insurance premiums for both myself (67) and my wife (63). Would I get tax exemptions on both?

—Shayan Basu

An individual can claim tax deduction on payment made towards health insurance premium under section 80D of the Income-tax Act, 1961. The deduction can be availed on premium payment for self, spouse, dependent children and parents subject to prescribed conditions.

For senior citizens (above 60 years), during a financial year (FY) the deduction is restricted to Rs.30,000 (includingRs.5,000 towards preventive health check–up). However, this benefit is not available if premium is paid by cash. Since you are paying for health insurance for yourself and your spouse, and both of you qualify as senior citizens during FY17, you can claim up to the maximum deduction of Rs.30,000 in aggregate, for the both of you.

My provident fund (PF) subscription is less than 5 years old with my previous employer. I have got a job in another company and want to withdraw the PF amount maintained with the old employer. Will I be taxed?

—Rakhi Sharma

PF withdrawal is taxable in the same FY if it is withdrawn without rendering continuous services for 5 years, as per the Act. However, if the accumulated PF balance maintained with the old employer is transferred to the PF account of the current employer, then the period of previous employment is also included as part of continuous service.

Assuming that your job with the ex-employer was your first one, or that you had not transferred your PF balance with your employer (if any) before that—as the total period of service with the ex-employer is less than 5 years—withdrawal of accumulated PF balance shall be taxable.

If the employer maintains a private PF trust, the tax would be deducted at source. In this case, you will receive the Form 16 issued by the PF trust depicting the taxable income and taxes deducted. If the PF trust has not deducted the tax, then you should report the income in your tax return and pay taxes.

If the PF balance is maintained through the Regional Provident Fund Commissioner, taxes may be deducted at the rate of 10% if amount of withdrawal exceeds Rs.50,000.

If you transfer the accumulated old PF balance to the new employer and, in future, withdraw the accumulated PF balance maintained with the new company, while computing the period of continuous service, the period of service rendered with the earlier company will also be included.

If the cumulative years are likely to be more than 5 years, there will not be any tax implications on PF withdrawal.

PF withdrawal can be as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, which requires you to have a non-employment period of two months after leaving your job.

[“Source-Livemint”]

Gift from certain relatives is tax free in India

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After living in the US for 10 years, I returned to India last week. Will my rupee deposits in Indian accounts be taxed differently with the change in my residential status?

—Nagesh Hariharan

Interest earned on non-resident external (NRE) and foreign currency non-resident (FCNR) accounts is not taxable in India until you qualify as a ‘resident’ and ‘ordinarily resident’ for tax in India.

Interest earned on a non-resident ordinary (NRO) account is taxable in India irrespective of your tax residential status. So, it is likely that there is no immediate impact on your taxability in India.

Interest income earned from savings bank accounts in India is eligible for tax deduction of Rs10,000.

I have recently moved to the UK and want to remit money every month to my parents who live in India. Who will be taxed for this?

—Rajat Gulati

Remittance from the UK every month to your parents in India is not liable to tax in India either in your or your parents’ hands. There is a specific exemption under Indian income tax laws on cash or gifts from relatives.

I am an NRI in Canada and want to buy agricultural land jointly with my brother in Punjab. How will the transaction be taxed?

—Harsimran Bhramra

There is no income tax implication on purchase of immovable property.

However, under the Indian exchange control rules (Foreign Exchange Management Act), while an NRI or a person of Indian origin (PIO) such as yourself is permitted to buy immovable property in India, purchase of agricultural land, farmhouse and plantation property is not permitted.

Therefore, gift of a commercial plot by you to your sister in India will not be liable to tax in India.

I want to gift a commercial plot worth Rs15 lakh to my sister in India. I’m a PIO based in the UK. Will she be taxed on this transaction? If yes, how will that be taxed?

—Harminder Bajwa

Gifts, including cash and immovable property, from a relative are not liable to tax in the hands of the recipient or in the hands of the person giving the gift.

A relative is defined to include spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or descendant, any lineal ascendant or descendant of the spouse, and others.

Therefore, gift of a commercial plot by you to your sister in India will not be liable to tax in India.

[“Source-Livemint”]

Minor becomes a tax payer if her income arises from her skills

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My son (15) is a singer and performs at live shows where he gets paid. I want to know how his earnings will be taxed.

—Mohit Bhatnagar

As per section 64(1A) of the Income-tax Act, 1961, clubbing provisions (i.e., income of the minor is clubbed with the income of the parent) would be applicable if the minor (i.e., below the age of 18 years) earns an income.

But these clubbing provisions are not applicable if the income arises or accrues to the minor child on account of activity involving application of his skill.

Since your son earns income by performing at live shows, the income earned shall be taxable in his hands. He will be taxed as a separate taxpayer. The amount received by him for his performances would generally be taxable as income from business or profession. Depending on the income, the applicability of maintaining books of account, tax audits and service tax need to be examined separately.

If I resign from a company after total service of 6 years, kindly confirm if there would be any tax deducted at source (TDS) on withdrawal of my Provident Fund (PF)?

—Nikhil Sharma

The PF withdrawal triggers a tax liability if the same is withdrawn without rendering continuous services with the employer for a period of 5 years or more. But if the accumulated PF balance maintained with the old employer is transferred to the PF account of the current employer, then the period of previous employment is also included as part of continuous service.

As you have already completed more than 5 years of service with your employer, there will not be any tax implications on receipt of the accumulated PF amount in the year of receipt of the amount. Accordingly, there will be no TDS at the time of payment. But you will have to report the PF withdrawal amount in the personal income tax return (ITR) form, to comply with the reporting requirements. The PF withdrawal will be as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, which requires you to have a non-employment period of 2 months after leaving your job.

I married in 2016. My wife and I received gifts in the form of cash from relatives and friends, which totalled aroundRs.45,000. Do we have pay tax on it?

—Yash Mehta

Under section 56 of the Act, any sum of money, the aggregate value of which exceeds Rs.50,000 received by an individual during the financial year (FY) without or for inadequate consideration, is taxed under ‘income from other sources’ in the hands of the recipient. But any amount received from specified relatives, or that received on the occasion of marriage, is not taxable in the hands of the recipient.

As the aggregate value of cash received by both of you during

FY17 is on occasion of your marriage, there will not be any tax implication.

[“Source-Livemint”]