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Taxablity U/s 56 (1) (vii)

Ankit Goyal (Banker) (78 Points)

06 October 2010

Hi Everyone,

Just a small doubt, we all know any sum over 50,000 received from non relative is taxable u/s 56 (1) (vii).

The wording of section refers it as 'any sum of money, without consideration' thus it does not use the word gift, however intention here is tax gifts received without consideration.

My question is what if i am

a) Extending a loan to a friend, which he will repay back after some time?

b)Transferring for a very short time in friends Bank account (As his bank was having special arrangements with website where i wanted to pay the money).

Will My friend be taxed for that amount u/s u/s 56 (1) (vii) whereas he never kept that money?

How will it be distinguished that the amount advanced is a gift or a loan?

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5 Replies

Samiksha (Articles) (345 Points)
Replied 06 October 2010

Loan is not receipt without any consideration, and your advancing to him will not be taxed as gift.

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vkbothra (Learning ) (690 Points)
Replied 06 October 2010

Dear

Gift mean amount which we received , will be treated as our capital, and will be non-refundable.

as per your both question, that amount will be treated as loan non as gift.

;)

krishna Teja (CA Final) (85 Points)
Replied 06 October 2010

Mr. Ankit,

A person will be taxed under S.56 when he receives a sum exceeding Rs.50,000/- without consideration. Here, the intention of the legislature is that you will be utilising that money without earning it or expending any resources for it.

Loan - When you receive a loan, it is implied that you will be repaying it (with or without interest). So, it is not a gift. A gift is something which you are not expected to repay (at-least when the transaction occurs). Also if you pay interest on it, it is deemed that you are paying some consideration for it.

Transferring for a very short time in friends Bank account - This depends on what your friend has done with it. If ultimately he repays you then its not taxable as gift. But if used for his personal purposes (and he never repays you) it will be taxed as gift.

2 Like

ritesh garg (article) (95 Points)
Replied 06 October 2010

hii Ankit, you can lend money to your friend and also deposit in his bank A/c but if the amount of loan is more than Rs 20000/- you cannot lend him in cash but only by account payee cheque otherwise the same wil not be taxed u/s 56(1)(vii) but u/s 269ss.

prerna (auditor) (95 Points)
Replied 07 October 2010

Originally posted by : vkbothra
	Dear Gift mean amount which we received , will be treated as our capital, and will be non-refundable. as per your both question, that amount will be treated as loan non as gift. ;)