Tax Talk

My wife has some money which has been gifted by her father and brothers on various festivals.

Now, if she puts that money in a bank's fixed deposit, would the interest income so generated be considered totally her income or would any clubbing provisions come into play?

I have learnt that gifts obtained from some relatives attract tax for the donor (clubbing provisions). Gifts obtained from which type of relatives are taxable?

- Suresh Vegda

According to the Income-tax Act, 1961 (the Act), any sum of money received from a relative (including father, brother, spouse etc) as gift is exempt from tax. Hence, the sum gifted to your spouse by her father and brothers shall be tax exempt in her hands. There is no limit on the amount which can be given as a gift.

Clubbing provisions apply in specific cases as mentioned in the Act. In the instant case, income earned by investing sums gifted to your wife by her father and brothers will be taxed in your wife’s hands only and clubbing provisions shall not apply.

Taking an example, in case any asset is transferred by a husband to his wife and vice versa, or by an individual to his son’s wife for inadequate consideration, clubbing provisions shall apply. Therefore, if your father or you have gifted any sum to your wife for inadequate consideration, any income earned by your wife from such asset/sum will be clubbed with the income of your father or your income, as the case may be.

I am 60 and have received the entire sale consideration for my plot in January 2013 under an agreement of sale.

Also, the buyer was handed over possession in January 2013 and has commenced construction of a bungalow on the plot.

However, no sale deed has been executed yet.

Can this be treated as sale in FY 2012-13, under Income Tax Act for the purpose of capital gains calculation?

Will it be liable to capital gains tax when the sale deed will be executed and registered in FY 2013-14?

For capital gains tax saving reinvestment what is the period available and when will it commence?

- Dipen Gandhi

As per the Income-tax provisions, any profits or gains arising from the transfer of a capital asset during a financial year shall be chargeable to income tax in that financial year. Transfer as defined under the Act includes any transaction involving the allowing of the possession of any immovable property in pursuance of an agreement for sale in writing. Further, a transaction which provides the buyer with the right to enjoyment of property is also covered by the definition. We understand that the buyer has been handed over the possession of the plot under a written agreement to sell in the Financial Year 2012-13. You have also received the entire consideration in FY 2012-13. Therefore, you would be liable to pay tax on capital gains earned from the transfer of the plot in the FY 2012-13 irrespective of the fact the sale deed has been executed and registered in the FY 2013-14.

In case the plot sold qualifies as a long term capital asset, you can avail an exemption from long term capital gain (LTCG) tax, by reinvesting the sale consideration in a new residential property (Section 54F) by purchasing the new house, within a period of one year before or two years after the date on which the transfer took place or constructing a new house within three years from the date of sale. Alternatively, you can invest the LTCG in specified securities within 6 months (Section 54EC). These reinvestments are subject to fulfilment of other prescribed conditions.

Any amount of capital gains which are not reinvested/utilised before the date of furnishing the return of income under section 139, can be deposited in a special account known as the Capital Gains Account Scheme (CGAS) account before furnishing such return to avail the exemption and can be utilised later as per the conditions specified for that particular exemption.

(The author is a practising chartered accountant)

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