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Tax implications on relinquishment deed amongst family members |
TAX TALK-23.01.2017-THE HITAVADA
TAX TALK
CA. NARESH JAKHOTIA
Chartered Accountant
Tax implications on relinquishment deed amongst family members
Query 1]
We are two real brothers and two real sisters. Our father owned a residential house in New Delhi and one plot and a residential house in Nagpur. Our father and mother expired few years ago. After their death, the properties are mutated in the names of all four of us. Now we want to give the residential house of New Delhi to younger sister. The elder sister does not want anything. Both sisters want to give plot and residential house at Nagpur to both the brothers. Brothers want to hold the properties jointly. Please advice, if there are any income tax implications in the following situations:
(i) If we register relinquishment deed without any consideration and do the mutation accordingly.
(ii) If we register gift deed and do the mutation accordingly.
Also advice how much stamp duty and registration charges are applicable on above transactions & is there any other option to transfer the properties in above manner with minimum or no tax burden? [Rajiv Mishra - r.k.mishra19719@gmail.com]
Opinion:
“No matter what you’ve done for yourself or for humanity, if you can’t look back on having given love and attention to your own family, what have you really accomplished?” -Elbert Hubbard
With so many family conflicts and disputes amongst the family members after the death of parents, yours is a family which has set an example of love, affection, sacrifice & bonding. Blood makes you related, Love makes you family. It’s pleasure to cover your query in the tax talk.
The transaction of relinquishment or gift deed is in between the brother and sisters only & that too without consideration. It would not have any income tax implications in the hands of any of the family members. Levy of stamp duty is the prerogative of state Governments and varies from state to state. You need to consult the advocate of the area where the property is located.
Query 2]
I am getting Rs 7 Lakh from double up scheme of sale of my plot. As such, I have to pay 20% capital gain tax. But I am gifting the amount to my married daughter who is going to invest the amount in purchasing a flat at Hyderabad. Therefore, we are investing the amount again in property hence should be exempted from capital gain tax, though my name cannot be included in the registry of flat. Please suggest the documents to be prepared in this regards and what information we have to provide to income tax officers to claim income as tax free? [Mahesh Chandra Agrawal-drmcagrawal@gmail.com]
Opinion:
- Subject to other stipulations, Long Term Capital Gain (LTCG) arising on sale of plot could be saved by claiming an exemption u/s 54F by investing the amount of sale consideration towards purchase / construction of a house property. For valid undisputed exemption, taxpayer only has directly to invest the amount. Investment by any other person or indirect utilization of amount by some other person would defeat exemption claim of the taxpayer u/s 54F.
- In your case, you would be earning LTCG and thereafter proposes to gift the amount to your daughter who in turn would be utilizing the amount for purchase of house property. It would not be strictly in accordance with the stipulations of section 54F and may not serve the purpose of saving tax.
- You can think of alternative option to save tax whereby you can gift the plot first to your daughter who in turn would be selling it to the original builder/ developer or any other person whosoever. As a result, long term capital gain would accrue in the hands of your daughter which can be saved by investing in accordance with the requirements of section 54F.
Query 3]
My son was employed with one reputed Multi-National I.T. Company (MNC) and after joining he has submitted bond for Rs. 1.50 Lacs, to serve them at least for 1 ½ year as per their Terms of Offer Letter. Due to some compulsion, he has submitted resignation before due date of Bond, and before acceptance his resignation, Company has requested him to pay Bond Amount of Rs. 1.50 Lakh. Accordingly, he paid Rs. 1.50 Lakh, towards compensation as per Bond submitted with MNC while joining. Now, my Query is whether he will get any benefit of said payment of Bond amount Rs. 1.50 Lacs in Income Tax since the amount is paid from the Salary Earned during his tenure of working with that particular MNC? If yes,
1. Which documents needs to be submitted to Income Tax Authority for claiming benefit under Income Tax Act?
2. How the said MNC will incorporate said amount while issuing Form 16?
3. How to bifurcate the said amount in two different Financial/Assessment Years? [2milind.joshi@gmail.com]
Opinion:
Income Tax Act prescribed the mode of computing taxable income. Income tax is levied on every income earned by the taxpayer in accordance with the provision of the Act. Salary income is charged to tax u/s 15 of the Income Tax Act-1961. From salary income, only few deductions are admissible which include deduction towards House Rent Allowance (HRA), conveyance allowance, medical reimbursement etc. No deduction towards bond amount is permissible while working out salary income of the taxpayer. Payment of bond money in your case is an application of income and no deduction is allowed while computing salary income u/s 15.
[Queries are also often raised by the readers with regard to exemption or deduction in case of surrender or forgoing of salary by the employee. It may be noted that the basis of taxation of “Salary” income as fixed by section 15 provides for taxation of salary on “due” basis or on “receipt” basis, whichever occurs earlier. As a result, if employee surrender or waives his salary, it would not mean that salary so forgone or waived is not liable for taxation. Once salary has accrued to an employee, its subsequent waiver would not make it exempt from tax. Such voluntary forgoing/surrender/waiver of salary by an employee (after becoming due) is an application of income and is therefore chargeable to tax. Only exception is with regard to surrender of salary to the central Government which is exempt under Voluntary Surrender of Salaries (Exemption from Taxation) Act-1961].
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com]
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