Taxation of Gift Transaction

Taxation of GIFT Transactions

In the Hands of Donor

1.       There is no separate tax in the hands of Donor on the amount of gift given, whether in cash or kind.

2.       The transfer of CAPITAL ASSET by way of GIFT is also not subject to Capital Gain Tax in the hands of Donor (Section 47(iii))

In the hands of Donee/Recipient

Recipient- Individual & HUF {Section 56(2)(vii)}

Type of Asset Received by way of Gift

1.       Any sum of money received in excess of Rs. 50,000- Entire amount is taxable in the hands of recipient as Income from Other Sources

2.       Any immovable property

a)      Property  received without consideration -  Stamp Duty Value of such property will be taxable in the hands of recipient as Income from Other Sources, ifsuch exceeds Rs. 50,000

b)      Property Received for Consideration ,consideration being less than Stamp Duty Value by more than Rs. 50,000- Stamp duty value less consideration given, will be taxable in the hands of Recipient as income from other sources

3.       Any other property, other than Immovable Property:-

a)      Property received without any consideration – Fair Market Value of such property will be taxable in the hands of recipient as Income from Other Sources, if FMV exceeds Rs. 50,000.

b)      Property received for consideration, consideration being less than Fair Market value by more than Rs. 50,000- Fair Market value less consideration given, will be taxable in the hands of Recipient as income from other sources.

Property ,other Immovable property, meaning

a)      Shares & Securities, both listed and unlisted

b)      Jewellery

c)       Archaeological collections

d)      Drawings

e)      Paintings

f)       Sculptures

g)      Any work of art

h)      Bullion

Fair Market value of Property,  other than immovable Property.

1)      Shares & Securities

A)     Listed Shares & Securities – Lowest price of such shares & securities on any recognised stock exchange on the date of gift

B)      Unlisted Equity Shares – Book value per equity share on the date of gift.

C)      Unlisted other securities – Value which such security will fetch, if sold in open market on the date of gift.

2)      Other than Shares & Securities – The value which it will fetch if sold in open market or value given by registered valuer.

Exception – Cases, where recipient will not be subject to tax on Gift received in cash or kind

a)      Received from Relative.

b)      Received on occasion of marriage of the Individual recipient.

c)       Received under will or by way of inheritance.

Recipient- Firm & Specified Company {Section 56(2)(vii)a}

Type of Asset Received by way of Gift

1.       Shares (Equity & Preference) of Specified Company received:-

a)      Without consideration and Fair Market value of shares exceeds Rs. 50,000- Fair Market Value of such shares will be taxable in the hands of recipient as income from other sources.

b)      For consideration which is less than Fair Market value by more than 50,000-  Fair Market value less consideration given, will be taxable in the hands of Recipient as income from other sources.

Meaning of Specified Company

1.       Private Limited Company

2.       Unlisted Public Company

3.       Unlisted public company, which is not a wholly owned subsidiary of listed company.

Fair Market value of Share

Shares & Securities

A)     Listed Shares & Securities – Lowest price of such shares & securities on any recognised stock exchange on the date of gift

B)      Unlisted Equity Shares – Book value of the date of gift

C)      Unlisted Preference shares – Value which such security will fetch, if sold in open market on the date of gift.

Taxation of Excess Consideration against Issue of shares (Section 56(viib))

1.       Applicability

a)      Entity- Specified Company

b)      Transaction – Issue of shares (equity or Preference) at a price more than the face value.

2.       Taxability – Consideration received against issue of shares, which is more than fair market value of such shares, then such consideration in excess of Fair market value will be taxable in the hands of specified company as Income from other sources.

3.       Specified Company

a)      Private Limited Company

b)      Unlisted Public Company

c)       Unlisted public company, which is not a wholly owned subsidiary of listed company.

4.       Fair Market Value – Fair market value is either of following value at the option of specified company

a)      Book value on the date of issue of shares

b)      Value determined by merchant banker  of practising FCA by way of DCF method

c)       Value justified by specified company before Assessing office based on the value of intangible assets being goodwill, know-how, patents, copyrights etc.