income tax notices
income tax notice

In India, gifts received may be subject to income tax depending on the source and value of the gift. Here’s a breakdown of the key aspects:

1. Taxability of Gifts

  • Gifts under ₹50,000: Gifts received up to ₹50,000 during a financial year are exempt from tax.
  • Gifts exceeding ₹50,000: If the total value of gifts received from non-relatives exceeds ₹50,000 in a financial year, the entire amount becomes taxable.
  • Gifts from Relatives: Gifts received from specified relatives (spouse, siblings, parents, lineal ascendants/descendants, etc.) are fully exempt from tax, regardless of the value.
  • Gifts on Special Occasions: Gifts received on occasions like marriage or inheritance are also exempt from tax.

2. Income Tax Notices

The Income Tax Department may issue notices regarding gifts received if:

  • High-value transactions: Banks or financial institutions report high-value transactions, such as cash deposits or property transfers, which may trigger scrutiny from the tax department.
  • Discrepancies in ITR: If the information provided in your Income Tax Return (ITR) doesn’t match the reported transactions, you may receive a notice seeking clarification.

3. Responding to Notices

If you receive an income tax notice regarding gifts:

  • Review the notice: Understand the specific information being sought and the relevant section of the Income Tax Act.
  • Gather supporting documents: Compile gift deeds, bank statements, proof of relationship with the donor, etc.
  • Draft a response: Explain the nature of the gift and its exemption under the Income Tax Act. Attach supporting documents.
  • Submit your response: Respond through the income tax portal under the ‘Pending Actions’ tab.

4. Key Points to Remember

Important Note: While gifts from relatives are exempt, it’s crucial to maintain proper documentation to avoid any issues with the tax department.

Income Tax Query: Show gift from relative in Schedule EI of ITR: * My wife received Rs 20 lakh from her mother as a gift. However, she did not mention it in her ITR. Now she has got a notice under Section 131. What should she do?

—Ashok Thapliyal

A notice under Section 131 of the Income Tax Act is received when the Assessing Officer has reason to suspect that any income has been concealed or is likely to be concealed. From an income tax perspective, receipt of a gift from a relative does not trigger taxation, i.e., it is exempt in the hands of the receiver. However, it has to be disclosed as exempt income in Schedule EI of the ITR form. As you did not disclose the particulars of the gift received, a notice under Section 131 was sent to you. Gather all the documents sought and send within the deadline stipulated in the notice and co-operate with the tax authorities in the proceedings.

* I have invested in National Savings Certificates. How do I pay tax on the interest on maturity?

—Ajay Chopra

Deposits up to Rs 1.5 lakh in NSC qualify for deduction under Section 80C. Accrued interest on NSC also qualifies for deduction under it. As it is a cumulative scheme , each year’s interest is considered reinvested in the NSC. Since it is deemed reinvest-ed, it qualifies for a fresh deduction under Section 80C. Only the final year’s interest does not receive a tax deduction as it is not reinvested, but is paid back to the investor along with the interest of the earlier years and the capital amount.

* I am planning to redeem some units from my equity and debt mutual funds. How should I compute the tax on the gains?

—A K Mani

Capital gains derived from sale of listed equity shares, units of equity-oriented mutual fund held for more than 12 months results in long-term capital gain, taxable at 10% + cess + surcharge (if applicable), in excess of `1 lakh, with no indexation benefit. However, if held for 12 months or less, would result in short term capital gain (STCG), taxable at 15%. Capital gain derived from debt oriented mutual fund held for more than 36 months would result in LTCG taxable at 20%. You can avail the benefit of indexation. However, if held for 36 months or less, it would result in STCG which is taxable at slab rate.