The Hindu Business Line : Tax-free gift from grandfather

I am a senior citizen. Can I make a gift of Rs 2 lakh to my married daughter and also a sum of Rs 5 lakh to my grand daughter, who is yet to be married, to meet her marriage expenses?

What will be the tax implications on the gift and will the clubbing provisions apply in respect of the same? — Mrs Kalpagam Balakrishnan

There will be no tax implications on your gifts. Section 56(2)(v) provides for a specific exclusion in respect of such sums given to certain relatives without consideration, which will include your daughter and grand daughter as well.

As regards the clubbing provisions, there will be no clubbing in respect of income earned by your daughter from the sum gifted to her.

If your grand daughter is still a minor, the income earned by her out of the gifted sum would be clubbed in the hands of her parent and not in your hands in any case.

If your grand daughter is a major there will be no clubbing of the income earned by her from out of the sum gifted.

Will penalty and interest be levied if tax is not deducted at source on payments made to transporters? If so, what is the remedy available? — Kishan Agarwal

On payments made to transporters, tax is required to be deducted at source under Section 194-C at the time of payment or credit if the contract is for a sum exceeding Rs 20,000 or where the total payment of credit in a year exceeds Rs 50,000.

If there is a failure to deduct tax at source under Section 194-C, the consequences can be a disallowance under Section 40(a)(ia) in respect of the sum paid to the transporter recovery of the sum not deducted from the person responsible for deducting unless he could show that the tax on the said income has been paid by the payee interest under Section 201(1A) at the rate of 1 per cent per month starting from the day on which the tax is deductible to the date on which the tax is actually paid penalty under Section 271C for the failure to deduct tax at source while penalty will not be levied if there is a reasonable cause for the failure to deduct tax at source, the levy of interest under Section 201(1A) and the disallowance under Section 40(a)(ia) would be mandatory and there is no remedy against these consequences.

You may, however, note that the amount paid to the transporter will be allowed in the year in which the tax is deducted and paid even though the same is disallowed in the current year.

I had a demat account in the joint names of my brother and myself.

I had purchased a few shares in this account.

Later I opened a demat account in my name and transferred the holdings from the joint account to my individual account.

What will be the tax implications when I sell the shares—which were purchased through the joint account but sold through my demat account? — N. Venkat

There will be no tax implications on the transfer of the shares. When you seek to sell the shares, the period of holding will be reckoned, including the period in which it was owned by you in the joint account.

You may also note that for the cost of acquisition and the period of holding the ‘First in First Out Method’ is to be adopted and this is provided for in Section 45(1A) of the Act.

I am the drawing and disbursing officer of a State Government department. There are only four staff in this department including me for which I am the drawing and disbursing officer.

While there is no tax to be deducted at source for the other three staff there is some tax to be deducted at source on my own salary.

Will it be in order if I were to pay advance tax or self assessment tax and avoid deducting tax at source on my salary? — B.S. Rajendra

It would not be in order to be without deducting tax at source and for you to pay the tax by way of advance tax or self assessment tax.

Section 192 mandates that you would have to deduct tax at source on the salary payment as a drawing and disbursing officer and the mere fact that you would pay advance tax or self assessment tax cannot be a reason for you to absolve yourself of the responsibility of deducting tax at source.

My wife invested Rs 9.8 lakh in shares of an unlisted company during the period from 1996 to February 2007.

This company was purchased by a Bangalore based company, which is listed in the Bombay Stock Exchange.

On the purchase of the unlisted company by the Bangalore company, my wife received Rs 25,12,285 in June 2007 as a result of her transferring the shares held by her in the unlisted company.

What will be the tax implications on the same? Please note that no securities transaction tax was paid on the transfer. — S. Sivasubramanian

The sum of Rs 25,12,285 will be taken as the full value of consideration.

And from the same, the indexed cost of acquisition or as the case may be the cost of acquisition is to be reduced to arrive at the capital gains that will be chargeable to tax in the hands of your wife.

You may note that the indexed cost of acquisition is to be reduced if the asset is a long term capital asset and the cost of acquisition is to be reduced if the asset is a short term capital asset.

You may also note that the asset being shares will be treated as a long term capital asset if it is held for a period exceeding 12 months and will be treated as a short term capital asset if it is held for 12 months or less.

The long-term capital gains computed as stated above will be charged to tax at 20 per cent as increased by the appropriate surcharge and additional surcharge while the short term capital gains will be charged to tax at the normal rates of tax applicable to your wife.

(Mail your queries to taxtalk@thehindu.co.in, or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002)