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Loan / Gift from Proprietor company

Sunil (GM) (94 Points)

29 May 2011

I need expert advise on below..

My brother has proprietor concern of garment export .
1)Can he issue cheque from this company to me or my wife showing it as Gift ? Any tax implications for us or him ?
2)Can he issue cheque from this company to me or my wife showing it as interest free Loan? Any tax implications for us or him ?

Thanks

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Sunitha M Wadhwa (Financial Research Analyst) (73 Points)
Replied 30 May 2011

1) case of gift :-

The Income Tax Act 1961 (the Act) has been amended with effect from 1st October 2009
to provide that any gift-in-kind, being an immovable property or any other property, the value of
which exceeds Rs.50,000 (rupees fifty thousand), will become taxable in the hands of the donee,
being an individual or a Hindu Undivided Family (HUF), as income from other sources under
clause (vii) of sub-section 2 of section 56 of the Act. Therefore, any such person who receives a
gift of any such property on or after 1st October 2009 must pay the income tax due on the value
of the gift and disclose the taxable value of such property in the return of income for assessment
year 2010-11 and subsequent years.
The following types of gifts will, however, not be subject to tax, i.e. gifts (a) from a
person who is a relative; (b) on the occasion of marriage of the individual; (c) under a will or by
way of inheritance; (d) in contemplation of death of the donor; (e) from any local authority as
defined in the Explanation to section 10(20) of the Act; (f) from any fund or trust established
under section 10(23C) of the Act; (g) from any trust or institution registered under section 12AA
of the Act.
Relative is defined in the Act as (i) spouse; (ii) brother or sister; (iii) brother or sister of
the spouse; (iv) brother or sister of either of the parents; (v) any lineal ascendant or descendant;
(vi) spouse of any of the relative at clauses (ii) to (v); of the individual. Gifts received from
these relatives will not be subject to tax.

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Sunitha M Wadhwa (Financial Research Analyst) (73 Points)
Replied 30 May 2011

With respect to interest free loan, I am not pretty sure!!!

Sambhav (B.com(D.U)CA-Ipcc-final) (65 Points)
Replied 30 May 2011

for the purpose of bussiness profits calculations , a gift to a relative would be covered under section 40(a)2 of income tax act 1961, which doesnt allow you to take the benefit of gift as a deduction from your profit and loss statement. the TAX implication thus will fall on on the bussiness.

in case a loan (free from interest) is pased on from an employer to an employee (this relation has to be established) that interest rate shall be actualy computed and be treated as a perk to the employee, is taxable to employee as a part to his salary.

a gift transfered by a person to his/her relative(defined as per ITA-61) is NON-taxable.

a gift received from other than a relative if exceeds >50,000 in aggregate in a year shall become taxable as whole for the reciepient

biren (Accountant) (68 Points)
Replied 30 May 2011

My daughter has income from salary. if i gift rs 500000/- to her is taxable under any of the act? i.e. income tax, gift tax, welath tax or stamp duty?