The Hindu Business Line : Tax on gifts from ‘relatives’

There will be no bar on a gift being made by your mother’s sister to your wife. As regards tax implications, section 56(1)(v) deems any sum exceeding Rs 50,000 a year received without consideration to be the income of the individual or HUF. This section, however, provides an exclusion in certain cases, which also include a sum received from a relative.

The explanation to the section defines the term relative to mean spouse, brother or sister, brother or sister of the spouse of the individual, brother or sister of the parents of the individual, any lineal ascendant or descendant of the individual, any lineal ascendant or descendant of the spouse of the individual and spouse of person referred to in ii to iv.

Since your mother’s sister does not fall within the definition of the term relative of your wife for the purpose of this section, the sum received by her from your mother’s sister would be taxable as income from other sources.

If this gift had been received by you from your mother’s sister it would not have been taxable in your hands as your mother’s sister would fall within the definition of the term relative as defined in the section.

You may note that even if the sum is taxable as in the case of your wife, only the excess over Rs 50,000 will be taxable in her hands.

I own a self-occupied house. For the past five years I have been claiming deduction in respect of the interest and principal repayment towards the housing loan for purchase of this property. In November 2006 I purchased another property for Rs 26.30 lakh by taking a housing loan of Rs 23.40 lakh. The disbursement of this loan started on March 14, 2007, and ended on February 26, 2008. In June 2008, I sold the second property for Rs 26.50 lakh without paying any EMI but I had paid a pre-EMI interest of Rs 2.80 lakh to the bank. How do I claim deduction in respect of the pre-EMI interest as I have sold the property in June 2008? How should the gain of Rs 20,000 on sale of the second property be shown in my return of income? — Deepak

The pre-EMI interest cannot be claimed as a deduction. The gain if any on the sale of the property should be offered to tax in the return of income under the head capital gains as short term capital gains.

I do only buying and selling of shares and my turnover exceeds several crores. Will my income be treated as capital gains or business income? — Soumyajit Ganguly

Broadly speaking, the issue of whether such income will be treated as business income or capital gains can be decided based on the period of holding, the frequency of such transactions, the motive of the transaction, the entries in the books, the infrastructure deployed such as employees nature of systems monitoring, the source of funds.

From the facts given by you, particularly your statement that your transactions run to several crores, makes one take an immediate view that the income would be treated as business income. The full facts may, however, have to be analysed based on the tests stated above to arrive at the answer to the question raised. I am working in a private limited company. For the financial year 2007-08 I worked in one company for the first 9 months and in another company for the remaining 3 months. I did not give any notice period to my earlier employer and hence I paid 3 months salary as per agreement. Can I deduct that salary from my income chargeable to tax under the head salaries? — Ramesh

When incomes are computed under different heads only the deductions permissible under those respective heads can be claimed. In respect of salary, other than the exemptions under section 10, the only deductions permissible are those available under section 16.

The deductions available under section 16 are tax on employment, entertainment allowance in case of government employees. Normally, it will not be possible for any other sums to be deducted in computing income under the head salaries.

If, however, it is possible to take a view that the salary has been surrendered, the same may not be taxable under the head salaries.

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

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