The Hindu Business Line : Tax implications of gift given to sister

If one receives gift in excess of Rs 50,000 during a previous year, the entire amount so received becomes taxable as the recipient's income normally. But there are exceptions. Gifts from relatives are exempt from tax. And one of the specified relatives is brother or sister. Since your sister has received gift from her brother, the same will not be treated as her income. Nor are you required to pay tax on this. But what you have gifted will not go to reduce your taxable income even if the gift was made out of current year's income.

DEMAT ACCOUNT

The demat participant has refused to delete the name of the first joint holder on his death and insists on the other two joint holders opening a fresh demat account. Is this justified?

Anil Khare, email

Prima facie, the stand of the demat participant seems to be incorrect because the raison d'etre of joint holding under the company law is smooth continuation of the remaining holders on the death of one of them.

TAX CALCULATION

I have been working in the US on an H1-B visa since June 2006. I will be here till June 2008. I do not have any salary income in India for the financial year April 2007 to March 2008. I will have some interest income of about Rs 10,000. But I do propose to invest Rs 1 lakh in Section 80 C (70,000 PPF, 10,000 ELSS and 20,000 LIC insurance policy).

I had lent Rs 4 lakh to a friend of mine. He invested in property in his name and made a profit of Rs 4 lakh. My share of the profits is Rs 2 lakh. The entire property transaction happened in his name. I am assuming that my share of the profits (Rs 2 lakh) will be considered as interest income. Hence, my total income for the year is Rs 2,10,000. (Rs 2 lakh as interest from my friend and Rs 10,000 bank interest income). After investing Rs 1 lakh in Section 80 C, my taxable income becomes Rs 1.1 lakh. I am assuming that I will not have to pay any tax for the financial year April 2007 to March 2008 since the taxable income is only Rs 1.1 lakh. Please let me know if my calculation of taxable income is correct.

Dinsil, email

You are evidently in partnership with your friend, though it is an informal one. Hence the firm would be assessable to tax under Section 185, and the profit of Rs 4 lakh would be taxable at 30 per cent plus surcharge plus education cess. Personally of course you have no taxable income.

HRA EXEMPTION

Our company has been paying extra HRA (house rent allowance) at site through voucher payment for married workers and also giving HRA through a pay slip. While calculating HRA exemption we have been taking both HRAs for calculating the exemption. Please clarify the tax implications on extra HRA paid at sites under Income-Tax Act 1961 and FBT implication on such voucher payment.

Kiran, Guntur

It makes no difference whether HRA is paid through salary slips or separately through vouchers. It also does not matter whether you call part of the HRA as extra. Therefore what you have been doing hitherto is correct. If the HRA is taxable in the hands of the employees, there is no scope for levying FBT on the same again.

FOOD ALLOWANCE

Our company has been giving exemptions towards food allowance to our employees to the extent of Rs 2,600 per month by giving the food provisions coupons of the local super market and Rs 2,600 has been deducted from employee salary towards such food coupons. Please clarify whether our system is correct or not.

Kiran, Guntur

Since the company has recovered the value of the benefit provided to the employees from their salaries, there is no benefit given to them. Hence there is no tax liability.

S. MURLIDHARAN

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