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I understand that I will not have any tax liability if my friend gives a single cash gift of three lakh rupees to my HUF because after initial exemption of fifty thousand rupees available for gifts received, the taxable amount remaining would be only two lakhs and fifty thousand rupees upto which income of an HUF is exempt. Is my understanding correct?
No, your understanding is not correct. In case aggregate value of all gifts received during the year does not exceeds fifty thousand rupees, these gifts are fully tax free in the hands of the recipient but once the aggregate of all gifts by a recipient crosses the threshold of fifty thousand rupees whole of the amount of the gifts received become taxable without any exemption.
So there is no initial exemption for gifts in case the threshold is breached and the full value of three lakhs of the gifts will be treated as income of your HUF. After initial exemption of 2.50 lakhs rupees, you will have to pay tax on balance fifty thousand rupees. Please note that the income tax department can ask you to prove the credentials of the person like identity, capability of the giving the gift to examine the genuineness of the transaction failing which the amount of gift will be taxed at flat rate of 60% in addition to surcharge and penalty and interest.
Moreover, there is more to the transaction perceived by you. As per the income tax provisions a person cannot accept cash more than two lakhs in respect of any transaction failing which a penalty equal to the amount received in cash can be levied by the tax officer. So looking at the above facts, it is advisable not to take the gift in cash even if the gift is genuine and you are willing to pay tax on the amount beyond the exemption amount.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on his Twitter handle.
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