TAXES ON GIFTS AND THE NRI DILEMMA

Q1) I am likely to receive the shares of an unlisted company and immovable property as gift from my business associates / relatives. Are there any income tax implications in my hand and in the hands of donor? - Sandeep Thakur

With eff ect from 1st April 2009, a new section 56 (vii) has been inserted in the Income Tax Act, where an individual / HUF receives any sum or money, any immovable or movable property without consideration in excess of `50,000 from any person other than relatives, is taxable as income from other sources. Hence, the receipt of shares and immovable property by you from your business associate would be taxed in your hands and taxable amount would be the fair market value of shares and immovable property determined in accordance with the rules 11U and 11UA of the Income Tax Rules. However, if you receive shares and immovable property from any of your relatives, then nothing is taxable in your hands, such as spouse, brother and sister and their spouse or brother and sister of either parents or their spouse. Th ere are no tax implications in the hands of donor. For your further knowledge, if an individual receives any amount or property on the occasion of his / her marriage, nothing is taxable

Q.2) I am a non-resident Indian and own a residential house property in India for more than 4 years. I sold the property to a resident individual sometime back. So my questions are

(a) Whether benefit of Indexation is available to me?

 (b) Where can I invest the funds received on sale of property to save capital gains tax in India? - Rajiv Sharma 

Since the house property was held by you for more than 3 years, the said property is long term capital asset and as such it is entitled for cost indexation while computing the capital gain under section 48 of the Income Tax Act.

If you invest the entire amount of capital gain as computed above in a new residential property within a period of 2 years from the date of sale of your existing property, then the entire capital gain will be let off . You can also invest upto `50 lakh in NHI or REC bonds with six months from the date of sale. Capital gain to the extent of `50 lakh is exempt under section 54EC of the Income Tax Act.

Long Term Capital Gain if taxable, then would be taxed at 20 per cent which will be deducted by purchaser as withholding tax.

Since you are non-resident, you can also invest in a residential house purchased in foreign country as held by Bombay Tribunal in the case of Prema Shah (100 ITD 60) and Bangalore Tribunal in the case of Vinay Mishra (30 taxmann.com 341). However, this is a debateable issue.

Jayesh Dadia
B. Com (Hons.), FCA