I
am an NRI living in California. Recently, I got my share of family
property worth ₹60 lakh. As I don’t need this money, I have decided to
give ₹30 lakh to my friend for him to invest in a business. I have given
₹20 lakh to my brother-in-law and deposited the remaining ₹10 lakh in
my wife’s account who lives in India. What will be the tax implication,
if any? What proof will I need for income tax purposes when making these
transactions?
—Name withheld on request
Under
the India income tax law, the value of any asset received under a Will
or by way of inheritance is not taxable in India. However, the income
arising from transfer or use of inherited property in India
will be
taxable in India. If you have received a sum of money under Will or
inheritance, no tax is payable on such receipt.
If the family
property has been sold in India, it will be taxable in India in the year
of sale of property in the hands of the seller. Any immovable property
held for a period of more than 24 months is classified as long-term
capital asset. For inherited property, the holding period would be
calculated from the date of acquisition by the original owner.
In
case of a long-term capital asset, taxable capital gain will be net sale
proceeds less indexed cost of acquisition (i.e. adjusted as per cost of
inflation index or CII) less cost of improvement. Long-term capital
gain is taxable at 20% (plus applicable surcharge and education cess).
The long-term capital gain can be claimed as exempt from income tax to
the extent it is re-invested in India in specified bonds or one
residential house in India (to be either purchased within one year
before or two years after or constructed within three years of transfer
of the long-term capital asset). There are certain restrictions,
however, on the sale of a new house bought or acquisition of another
residential house and amount of investment made in bonds.
Tax
on capital gain can be either paid by way of advance tax in four
instalments (15% by 15 June, 45% by 15 September, 75% by 15 December and
100% by 15 March) or before filing of a tax return by way of
self-assessment tax along with interest by 31 July.
Further, under
the law, income tax is payable on any sum of money received by an
individual without consideration exceeding ₹50,000 per financial year
except if the same is received from a “relative” (as defined) or other
specified circumstances (including under Will or inheritance as
mentioned earlier).
Transfer
of money to your friend for investment purpose will not be taxable if
you have bought certain financial interest in the business (such as
shares, debentures etc.) or provided as a loan. However, if the money
has been transferred without any consideration, it will be taxable in
the hands of the recipient (i.e. your friend) as the amount gifted is
more than ₹50,000.
Transfer of money to your wife and brother-in-
law will not be taxable in India in the hands of the recipient as they
are covered under the definition of “relative”. You may prepare a gift
deed to document the transaction and for your records. However, income
arising to your wife from such gift will be clubbed in your hands.