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Tax on property passed through nomination

RAKESH JAIN (RETIRED COMPUTER PROFESSIONAL) (369 Points)

09 October 2009

Dear All,

Today there is a news in TOI (Bangalore) which mentions that gifts valued at over Rs. 50,000 wiil be taxable. Does it mean that any property of value more than Rs. 50,000 received through nomination will also be taxable?

Possibly not but kindly confirm.

Thanking you. RAKESH

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8 Replies

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 09 October 2009

Mr. Rajesh,

I doesnt understand your question. Nomination doesnt amounts to gift.

Incase of death of the property holder, nominee shall have power of executor. Executor needs to distribute property in case the testator(property holder) died inestate, The property shall be distributed to family members (benificiaries) in case of hindu as per Hindu Succession Act, in case of muslims Sharia Law and in other case Indian succesion Act.

In case testator has made testament (will) it will go to beneficiary, Nominee is not beneficiary, he shall act as executor. If executor is beneficiary or beneficiary get the property as per law or will, then it is called inheritance and not gift. There is no tax on Inheritance.

Thanks

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RAKESH JAIN (RETIRED COMPUTER PROFESSIONAL) (369 Points)
Replied 09 October 2009

Dear Juzer, Thank you for your reply. Your first sentence 'Nomination doesnt amounts to gift.' replies my query in general. However, rest of your answer generates some doubts. You mentione:

I was always under impression that nominee is the beneficiary. For example if I have a Fixed Deposit & I nominate it to my daughter, on my death she will be the beneficiary of this FD & nobody else can claim any right on it. Is this not true? Kindly suggest.

Thanking you. Best regards, RAKESH

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 09 October 2009

Dear Rakesh,

Will vis-a-vis nominations

If you have made nominations, does a will become essential?

Say, “Mr. A have a number of investments in shares, bank deposits, mutual fund, insurance policies etc. For all these investments, he has assigned a nominee say his wife. So is it necessary to make a Will for the same?”

In the eyes of the law, a nominee is a trustee and he need not necessarily be a beneficiary to a will. The nominee is merely a caretaker and the right to the property passes by will or if there is no will, under the personal law of the deceased i.e. Indian succession Act. 1950.

This means that if there is a will, the nominee will only hold the assets as a caretaker trustee for the beneficiary. The nominee will be legally bound to transfer the nominated property to the beneficiary of the will. If there is no will, he will have to transfer to the legal heirs. So ideally, if a will is made, it would be better to name the nominee as the beneficiary to ensure that the distribution is smooth and efficient

I found above somewere, I will try to find some legal text. Also I think the above is true for your query.

Thanks

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RAKESH JAIN (RETIRED COMPUTER PROFESSIONAL) (369 Points)
Replied 09 October 2009

Dear Juzer,

Thanks for your reply.

So, will is most powerful instrument to nominate different properties. But, what happens if a particular property is not mentioned in will. Suppose one has property A & property B. In his/her will he/she only mentions about property A (i.e. who will own property A after death). So, what happens to property B? If the property B is nominated (outside will) to some one, does he/she become the owner of property B after death of the person ?

Thanking you. Best regards, RAKESH

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 09 October 2009

Dear Rakesh,

There are general clauses who takes care of such properties for eg.

1. Any assets, movable or immovable, which might be omitted from being mentioned in this WILL or which may hereafter be acquired by me shall be taken by my wife for her life and after her death by the two sons as aforesaid in equal shares absolutely.

Thanks

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RAKESH JAIN (RETIRED COMPUTER PROFESSIONAL) (369 Points)
Replied 10 October 2009

Dear Juzer,

Thanks for detailed explanation.

Best regards, RAKESH

jabesh (business) (22 Points)
Replied 14 May 2010

My uncle expired in Dec 2009. He had nominated me for his fixed deposits which comes to around 4000000. For his other investments he had nominated my mother ( his sister ) and my other uncle ( his brother )

I have contacted the bank and received all the FD with interest in my account. Till now his brothers and sisters all together has not come to me asking their share. I will like to mention that he was unmarried and his parents or grand parents are not alive. This makes his 2 brother and 2 sister as his legal heir.

As there are centain issues to be settled in the business of his, the settlement may take even a year or so. Thus till that the amount is going to be with me.

Now I have the following doubts:

1. I have again invested the FD amount received with the interest in the bank in my name which comes to around 4300000. Now my problem is the bank deducts TDS on the interest and issues TDS certificates. How do I account it? If I claim the TDS, then even the interest I have to show as my income, which is not actually the fact. If I forgo the TDS deducted, then the IT dept. may think I am doing so because the amount may be unaccounted money and my file can come under their scan.

2. I even want to know that, when I split the amount among the legal heirs, do I have to split 4300000 only or they have the right on even the amount earned as interest on the 4300000? Because I had received only 4300000 as the nomination amount, whatever earned or lossed on the amount is my headach. If they have the right on the amount earned on 4300000, what if I say I had invested the same in shares etc. and made a loss of 1000000 and now I can split on 3300000 between them?

Kindly let me know how I have to do the justice. I never want a single paise from their share, but I don’t want to give any money from my pocket also, nor want to get in to trouble with the IT dept. my mail id is: visitjabs @ gmail.com

CA. RUPESH JOSHI (Chartered Accountant) (174 Points)
Replied 14 May 2010

Dear Jabesh

In the eyes of the law, a nominee is a trustee and he need not necessarily be a beneficiary to a will. The nominee is merely a caretaker and the right to the property passes by will or if there is no will, under the personal law of the deceased i.e. Indian succession Act. 1950.

As for your queries:

1) It would be advisable to show the interest income as your income and pay tax on the same. You may at the time of settlement of will claim back / retain the Tax amount from the beneficiaries.

2) Can be resolved through mutual discussion on the issue with the beneficiaries.