Receipt without consideration (Gift) from Non-Relatives

Any receipt without consideration or receipt with inadequate consideration from relatives (as defined under Income Tax Act) is not taxable. However, certain receipt without consideration or receipt with inadequate consideration even from non-relatives is not taxable. This can be very effectively used as a tool for tax planning.

Here, receipt without consideration or receipt with inadequate consideration includes receipt of cash, movable and immovable property. As per the Explanation provided u/s 56(2)(vii), Property means the following Capital Asset (as defined u/s 2(14)) of the assessee namely:-                   

     

a.      immovable property being land or building or both;

b.      shares and securities;

c.      jewellery;

d.      archaeological collections;

e.      drawings;

f.       paintings;

g.      sculptures;

h.      any work of art;[or]

i.       bullion

Thus, receipt of above Capital Asset by Individual or HUF as gift will attract Income Tax u/s 56(2)(vii).

Gift from relatives is not at all taxable under Income Tax Act,1961 but in following cases gift from Non-Relatives is also not taxable:-

1. Gift in cash(includes cheque and draft) from Non-relatives :-

In country like India, where we celebrate festivals almost every week, family function almost every month on occasion of birthdays, anniversaries etc., receipt of cash from non-relatives on these occasion is very common. Aggregate cash gift received in Previous Year (as defined u/s3 of Income Tax Act) from non-relatives will not be taxable if the amount does not exceed Rs.50,000/-.

E.g.

Cash gifts from-	Case-A	Case-B
Mr. Akbar	10,000	10,000
Mr. Birbal	20,000	20,000
Mr. Tansen	20,000	20,001
Total receipts during the Previous Year	50,000	50,001
Taxability	Not Taxable	Fully Taxable

Thus, even a single rupee received in excess of Rs.50,000 will make the whole amount taxable.

2. Gift in the form of Movable Property without consideration from Non-relatives :-

Movable Property received by Individual or HUF from anybody (non-relatives) without consideration, will not be taxable if aggregate of Fair Market Value of property received in Previous Year does not exceed Rs.50,000.

E.g.

Property received from-	Type of Property	Case-A	Case-B
Mr. Amar	Shares	25,000	25,000
Mr. Akbar	Gold	15,000	15,000
Mr. Anthony	Paintings	10,000	11,000
Total receipts during the Previous Year		50,000	51,000
Taxability		Not Taxable	Fully Taxable

3. Gift in the form of Movable Property for inadequate consideration from Non-relatives :-

Movable Property received by Individual or HUF from anybody (non-relatives) for inadequate consideration, will not be taxable if aggregate of the difference between Fair Market Value of property received in the Previous Year and Consideration actually paid by the recipient in the Previous Year does not exceed Rs.50,000.

E.g.

Property received from-	Type of Property	Fair Market Value (Rs.) (A)	Consideration actually paid by the recipient (Rs.) (B)	Difference (Rs.) (A-B)
Mr. Ashok	Shares	40,001	1	40,000
Mr. Chanakya	Gold	10,100	100	10,000
Total receipts during the Previous Year				50,000
Taxability				Not Taxable

4. Gift on occasion of marriage:-

On occasion of marriage an Individual can receive gifts of any amount from anybody i.e. there is no limit on the amount of gift received. E.g. Mr. Rahul close friend of Miss Sonia gifts Miss Sonia on her wedding flat worth Rs.25,00,000. This transaction is not at all taxable, as gift, in the hands of Sonia. Further, Mrs. Sonia gets divorced and remarries Mr.Rajeev, Mr.Rahul gifts her this time Gold worth Rs.25,00,000. Again this transaction is also not taxable in the hands of Miss Sonia as gifts received on re-marriage (after getting legally separated from former husband) are also not taxable. Thus, marriages can be said to be the best tool for tax planning!!!!

5. Gift by will/Gift on contemplation of death of payer:-

Any property or cash received by will or on contemplation of death of payer is not taxable.

6. Gift of property other than Capital Assets:-

Suppose an individual or HUF receives following assets as gift:-

a.      Mobile Phone

b.      Agricultural land

c.      Wrist Watch

d.      Car

e.      ‘Khandarh’- Building in dilapidated condition etc. (Baladin v. Lakahan Singh AIR 1927 All.214)

The above gifts from non-relatives will not be taxable as the same are not covered in the definition of Capital Asset. E.g. Mr. Narendra provides professional service to clients. From one client he receives no consideration but gets a Phone worth Rs.60,000 as gift. Treating it as gift it will not be taxable.

Note:- Gift from employer to employee will be taxable under the head salary as perquisite.

*Benefit Derived out of the above provisions:

Thus, in a year an individual can receive minimum income/receipts of Rs.1,50,000 from non-relatives without paying tax. Joint families can get maximum benefits out of these provisions.

E.g. Mr. Vadra gets following gifts from Non-relatives.

Cash gift from-	Amount(Rs.)
Mr. Amit	15,000
Mr. Chidambaram	10,000
Mr. Kapil	10,000
Miss Priyanka	15,000
Movable Property-
Mr. Arvind	12,000
Mr.Sisodia	12,000
Mr.Kasab	12,000
Mr. Yakub	14,000
Movable Property-(Inadequate consideration)
Mr. Nitish	18,000
Mr. Prabhu	20,000
Mr. Jitan	12,000
Total (Non-Taxable)	1,50,000

Further, if Mr. Vadra has formed his HUF then HUF can again get minimum

- See more at: http://taxguru.in/income-tax/receipt-consideration-gift-nonrelatives-tool-tax-planning.html#sthash.WOsTj1Wr.dpuf

Registration & submission of form 61B

According to the amended provisions of Section 285BA(1)(k)of the Income Tax Act, 1961, some prescribed reporting financial institutions need to furnish a statement of financial transaction or reportable account (previously called as ‘Annual Information Return (AIR)) in connection with some specified financial transactions done by them during the financial year to the income tax department.

Who is Reporting Financial Institution?

Rule 114G (1) of Income tax rule, 1962 casts an obligation on “Reporting Financial Institutions” to maintain and report certain information in respect of each “Reportable Account”. “Reporting Financial Institution” is defined in Rule 114F (7) to mean

(a) a financial institution (other than a non-reporting financial institution) which is resident in India, but excludes any branch of such institution that is located outside India; and

(b) any branch of a financial institution (other than a non-reporting financial institution) which is not resident in India, if that branch is located in India.

Following Steps may be followed to determine whether a person is a Reporting Financial Institution (RFI) and thus has reporting obligations:

•  Step 1: Is it an Entity?
•  Step 2: Is the Entity a Financial Institution?
•  Step 3: Is the Financial Institution in India?
• Step 4: Is the Financial Institution a Non-Reporting Financial Institution?

Step 1: Is it an Entity?

Only Entities can be RFIs. The term “Entity” would include legal persons and legal arrangements, such as corporations, partnerships, trusts, and foundations. Individuals, including sole proprietorships, are therefore not RFIs.

Step 2: Is the Entity a Financial Institution?

The definition of Financial Institution is very wide and includes custodial institutions, depository institutions, investment entities and specified insurance companies.

• Custodial Institution

Explanation (a) to Rule 114F (3) defines a “custodial institution” to mean any entity that holds, as a substantial portion of its business, financial assets for the account of others.

An Entity holds Financial Assets for the account of others as a substantial portion of its business if

Its “income attributable to the holding of financial assets and related financial services” equals or exceeds 20% of its gross income of

a. the three financial years preceding the year in which determination is made or

b. the period during which the entity has been in existence,

whichever is less.

“Income attributable to holding Financial Assets and related financial services” means custody, account maintenance, and transfer fees; commissions and fees earned from executing and pricing securities transactions with respect to Financial Assets held in custody; income earned from extending credit to customers with respect to Financial Assets held in custody (or acquired through such extension of credit); income earned on the bid-ask spread of Financial Assets held in custody; and fees for providing financial advice with respect to Financial Assets held in (or potentially to be held in) custody by the entity; and for clearance and settlement services.

Entities that safe keep Financial Assets for the account of others, such as custodian banks, brokers and central securities depositories, would generally be considered Custodial Institutions. Entities that do not hold Financial Assets for the account of others, such as insurance brokers, will not be Custodial Institutions.

• Depository Institution

Explanation (b) to Rule 114F (3) defines a “depository institution” to mean any entity that accepts deposits in the ordinary course of a banking or similar business.

An Entity is considered to be engaged in a “banking or similar business” if, in the ordinary course of its business with customers, the Entity accepts deposits or other similar investments of funds and regularly engages in one or more of the following activities:

(a) makes personal, mortgage, industrial, or other loans or provides other extensions of credit;

(b) purchases, sells, discounts, or negotiates accounts receivable, installment obligations, notes, drafts, checks, bills of exchange, acceptances, or other evidences of indebtedness;

(c) issues letters of credit and negotiates drafts drawn thereunder;

(d)provides trust or fiduciary services;

(e) finances foreign exchange transactions; or

(f) enters into, purchases, or disposes of finance leases or leased assets. Savings banks, commercial banks, savings and loan associations, and credit unions would generally be considered Depository Institutions.

An Entity is not considered to be engaged in a banking or similar business if the Entity solely accepts deposits from persons as a collateral or security pursuant to a sale or lease of property or pursuant to a similar financing arrangement between such Entity and the person holding the deposit with the Entity.

Savings banks, commercial banks, savings and loan associations, and credit unions would generally be considered Depository Institutions. However, whether an Entity conducts banking or similar business is determined based upon the character of the actual activities of such Entity.

• Investment Entity

Explanation (c) to Rule 114F (3) defines an “investment entity” includes two type of entities

♠ Entities which primarily conduct as a business one or more of the following activities or operations for or on behalf of a customer, namely:-

• trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading; or
• individual and collective portfolio management; or
• otherwise investing, administering, or managing financial assets or money on behalf of other persons;

Such activities or operations do not include rendering non-binding investment advice to a customer.

♠   Entities whose gross income is primarily attributable to investing, reinvesting, or trading in financial assets, if the said entity is managed by another entity that is a depository institution, a custodial institution, an investment entity or a specified insurance company.

If the entity’s gross income attributable to above mention activities equal or exceeds 50 % of entity’s gross income during shorter of:

a. the three-year period ending on 31 December of the year preceding the year in which the determination is made; or

b. The period during which the Entity has been in existence.

An Entity would generally be considered an Investment Entity if it functions or holds itself out as a collective investment vehicle, mutual fund, exchange traded fund, private equity fund, hedge fund, venture capital fund, leveraged buy-out fund or any similar investment vehicle established with an investment strategy of investing, reinvesting, or trading in Financial Assets. An Entity that primarily conducts as a business investing, administering, or managing non-debt, direct interests in real property on behalf of other persons, such as a type of real estate investment trust, will not be an Investment Entity.

• Specified Insurance Company

Explanation (d) to Rule 114F(3) defines “specified insurance company” to mean any entity that is an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, a Cash Value Insurance Contract or an Annuity Contract.

An “insurance company” is an Entity

a. that is regulated as an insurance business under the laws, regulations, or practices of any jurisdiction in which the Entity does business;

b. the gross income of which (for example, gross premiums and gross investment income) arising from insurance, reinsurance, and Annuity Contracts for the immediately preceding calendar year exceeds 50% of total gross income for such year; or

c. The aggregate value of the assets of which associated with insurance, reinsurance, and Annuity Contracts at any time during the immediately preceding calendar year exceeds 50% of total assets at any time during such year.

Most life insurance companies would generally be considered Specified Insurance Companies. Entities that do not issue Cash Value Insurance Contracts or Annuity Contracts nor are obligated to make payments with respect to them, such as most non-life insurance companies, most holding companies of insurance companies, and insurance brokers, will not be Specified Insurance Companies.

A “cash value insurance contract” is defined in Explanation (f) of Rule 114F(1) is defined to mean an insurance contract (other than an indemnity reinsurance contract between two insurance companies) that has a cash value and in case of a U.S. reportable account such value is greater than an amount equivalent to US$ 50,000. A single premium life insurance contract which does not permit an amount to be paid on surrender or termination of the contract and which does not allow amounts to be borrowed under or with regard to the contract, shall not constitute a cash value insurance contract.

Step 3: Is the Financial Institution in India?

The Financial Institutions resident in India, their branches located in India and branches of Foreign Financial Institutions that are located in India are the Reporting Financial Institutions while Foreign Financial Institutions, their foreign branches and foreign branches of Indian Financial Institutions are not. In the case of Trusts, the reporting requirement is on the Trustees resident in India, unless the required information is being reported elsewhere because the trust is treated as resident there.

Step 4: Is the Financial Institution a Non-Reporting Financial Institution?

Rule 114F(5) specifies a number of entities as non-reporting financial institutions and these entities are not required to maintain or report the information, except in case of “financial institution with a local client base” in certain specified situations. These non-reporting financial institutions are as under:

(a) a Governmental entity, International Organization or Central Bank;

(b)a Treaty Qualified Retirement Fund; a Broad Participation Retirement Fund; a Narrow Participation Retirement Fund; or a Pension Fund of a Governmental entity, International Organization or Central Bank;

(c) a non-public fund of the armed forces, Employees’ State Insurance Fund, a gratuity fund or a provident fund;

(d)an entity that is an Indian financial institution only because it is an investment entity, provided that each direct holder of an equity interest in the entity is a financial institution referred to in sub-clauses (a) to (c);

(e) a qualified credit card issuer;

(f) an investment entity established in India that is a financial institution only because it

•  renders investment advice to, and acts on behalf of; or
•  manages portfolios for, and acts on behalf of; or
•  executes trades on behalf of,

A customer for the purposes of investing, managing, or administering funds or securities deposited in the name of the customer with a financial institution other than a non-participating financial institution;

(g)an exempt collective investment vehicle;

(h)a trust established under any law for the time being in force to the extent that the trustee of the trust is a reporting financial institution and reports all information required to be reported under Rule 114G with respect to all reportable accounts of the trust;

(i) a financial institution with a local client base;

(j) a local bank;

(k)a financial institution with only low-value accounts;

(l) sponsored investment entity and controlled foreign corporation, in case of any U.S. reportable account;

(m) sponsored closely held investment vehicle, in case of any U.S. reportable account.

Explanation to Rule 114F (5) provide further explanation of the above categories of non-reporting financial institutions.

Registration of Reporting Financial Institutions and Form 61B Submission Procedure u/s 285BA of Income Tax Act, 1961

As per notification no. 3/2015 dated 27/08/2015, CBDT has issued procedure for registration and submission of report as per clause (k) of sub section (1) of section 285BA of income tax act, 1961 read with sub rule (7) of rule 114G of income tax rule, 1962 :

As per sub rule 9(a) of rule 114G of income tax rule, 1962, the statement which is furnished under sub rule (7) shall be furnished through online to NSDL under digital signature and as per the data format specified by Principal Director General of Income Tax (system).

As per sub rule 9(b) of rule 114G of income tax rule, 1962 Principal Director General of Income Tax (Systems) shall specify the procedures, data structures and standards for ensuring secure capture and transmission of data, evolving and implementing appropriate security, archival and retrieval policies.

In exercise of the powers delegated by Central Board of Direct Taxes (‘Board’) under Sub rule (9) (a) and 9(b) of Rule 114G of the Income tax Rules 1962, the Principal Director General of Income tax (Systems) lays down the procedures, data structure and standards for ensuring secure capture and transmission of data, evolving and implementing appropriate security, archival and retrieval policies as under:

(a) Registration of the reporting financial institution: The reporting financial institution is required to get registered with income tax department by logging in to e-filling website with using same logging ID and password which is used by reporting financial institution for filling of income tax return. After logging in, a link to registered reporting financial institution has been provided under ‘My Account’. The reporting financial institution now required to submit registration details on screen. The reporting financial institution may submit different registration information under different reporting financial institution.

(b) Submission of Form 61B: Once the reporting financial institution is gets registered successfully, it is required to submit the form 61B or nil statement under e- file menu. The scheme for form 61B can be downloaded from e-filling website. The reporting financial institution is required to submit reporting entity category and calendar year for which report to be submitted. The reporting financial institution will then be provided the option to upload the form 61B. The form is required to be submitted using a Digital Signature Certificate.

(c) Submission of NIL statement: In case nil statement has to be submitted by reporting financial institution, the option to submit nil statement is required to be selected and will then required to submit declaration with respect to pre-existing accounts and new accounts. The declaration is required to be submitted using a digital signature certificate.

(d) Digital Signature Certificate: In case if Designated director is same as the person authorized to verify the return of income of reporting financial institution as per provisions of section 140 of income tax act, 1961, the Form 61B or Nil statement is required to be submitted with the digital signature certificate of the person authorized to sign the return of income of the reporting financial institution. In other cases, the procedure will be notified separately.

- See more at: http://taxguru.in/income-tax/income-tax-reporting-financial-institution-registration-submission-form-61b.html#sthash.MvwWpBNu.dpuf

CBDT finally extended due date all over India to 31.10.2015

Government Extends the due Date for E-Filing of Returns of Income Tax and Audit Reports U/S 44AB of Income Tax Act from 30th September, 2015 to 31st October 2015

Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

PRESS RELEASE

New Delhi, 1^st October, 2015

Subject: Extension of date for filing of Income tax returns and tax audit reports to 31^st October 2015 – regarding

The issue of extension of last date for e-filing returns of income and audit reports u/s 44AB due by 30^th September, 2015 has been the subject matter of litigation in various High Courts across the country. While some High Courts have ruled in favour of the extension of due date, some others have ruled otherwise. In order to avoid discrimination between taxpayers residing in different jurisdictions and to be fair to all, and also in view of paucity of time to approach the Hon’ble Supreme Court by way of Special Leave Petition, the Government has decided that across the country, all the returns of income and audit reports u/s 44AB which were due for e-filing by 30^th September, 2015, may now be filed by 31^st October, 2015.

Necessary order u/s 119 of the Income-tax Act, 1961 has been issued by CBDT in this regard.

(Shefali Shah)
Pr. Commissioner of Income Tax (OSD)
Official Spokesperson, CBDT

—————————————————

F.No.225/207/2015/ITA.II
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

North Block, ITA.II Division New Delhi dated the 15t of October, 2015

Order under Section 119 of the Income-tax Act, 1961

In supersession of orders under Section 119 of the Income-tax Act, 1961 (`Act’) dated 30th, September, 2015 vide file of even number, the Central Board of Direct Taxes, in exercise of powers conferred under Section 1 19 of the Act, hereby orders that the returns of income and audit reports u/s 44A13 due for e-filing by 30th September, 2015 may be filed, across the country, by 31′ October, 2015.

(Rohit Garg)

Deputy Secretary to the Government of India