Gift amount from parents is tax-exempt for the receiver Ensure that documentation with respect to aforesaid gift transaction are in place

I plan to sell a residential property acquired in 2003. I intend to re-invest the proceeds but in a commercial property. Would this transaction be exempt from capital gains (assuming that the re-investment will be more than the gains)? —Mohit As you have held the residential property for more than 36 months from the date of acquisition, the gains resulting from sale of the said residential property shall be categorized as long-term capital gains (LTCG). 


LTCG can be claimed as exempt from capital gains tax by re-investing it in a new residential property within the specified time frames (i.e. within one year prior to sale date or two years from the sale date or within three years from the sale date for an under-construction property). Alternatively, the LTCG can be invested in specified bonds subject to fulfilment of other specified conditions under the domestic tax law. Since the LTCG has to be invested in a residential property or in specified bonds, if you propose to re-invest the gains in a commercial property (which was always meant to be a commercial premise and not a residential property used for commercial purposes), you cannot avail the aforesaid exemption from capital gains tax. 


Accordingly, the entire LTCG shall be taxed at a flat rate of 20%. Additionally, if your total taxable income during financial year (FY) 2014-15 exceeds Rs.1 crore, surcharge at 10% on basic rate (i.e. 20%) should be applied. Further, an education cess of 3% on basic as well as surcharge (if any) is applicable. My wife has received a gift in the form of a cheque from her father out of the proceeds obtained from sale of his agricultural land. What will be the tax treatment for this amount? —Sachin Srivastava We have assumed that your wife has received money from her father out of the sale proceeds which her father would have received from sale of agricultural land.


The entire money received by an individual from any person during any FY without consideration, the aggregate value of which exceeds Rs.50,000, is taxable under the head “income from other sources”. However, an exemption is available if the money is received from a relative which includes, among others, parents of an individual. Accordingly, the gift amount received by your wife from her father shall not be taxable in her hands. In this respect, one has to ensure that documentation with respect to aforesaid gift transaction are in place. Any subsequent investment made by your wife out of the money received which has an income element, will be taxable in her hands depending on the share of income. The tax implications in the hands of her father as a seller of the agricultural land will have to be examined separately. 
Source- Licemint.com

                   By
Shah Mohammad Abdul Qadir
       PGDM 3rd Semester.
IIMT college Of Management,
       Greater Noida, U.P.