No tax on gifts received in contemplation of death

SC Vasudeva

Q.  I am a super senior citizen. A gift of immoveable property (rural agricultural land) to a non-relative is made vide a registered gift deed because of affection, old age, illness and in anticipation of death. Is this gift exempt under the Income Tax Act in the hands of the recipient? 

— Karan Vir Singh Dhillon

A. The gift made in contemplation of death would not be taxable in the hands of the recipient in accordance with the provisions of Section 56(2)(x) of the Income-Tax Act 1961 (The Act). An exception for such a case has been provided in the aforesaid section in clause IV of the proviso to the aforesaid section.

Q. The Patiala Development Authority and Omaxe jointly set up a residential colony on the land acquired by the Punjab Government on Sirhind Road, Patiala, for it in 2007.  In a lottery system, I was allotted a plot measuring 299 sq yards.  I paid Rs16,41,500 by prescribed seven instalments from January 2008 to July 2009.  Later, farmers moved the High Court against low compensation for their land.  The value was raised for plot holders. And the entire cost worked out at: Original cost: Rs 16,41,500 (paid from January 2008 to July 2009), Additions: Rs 1,49,500 (Paid on June 16, 2014) & Rs1,67,440  (Paid on May 26, 2017), Total: Rs19,58,440 and Miscellaneous charges: Rs 5,264.                                         

Tentatively, Rs5,000 will be paid for taking possession. I intend to sell the plot.  Offers are from Rs 38 lakh to Rs 40 lakh.  If sale proceeds are taken as Rs 40 lakh, what will be my tax (in terms of long-term gains) liability?— P Sagar

A. Reply to your query is without considering the indexed cost for the instalments paid by you from January 2008 to July 2009. The indexed cost has been considered for the financial year 2008-2009. The reply is also based on the presumption that you are not a senior citizen.   

The total indexed cost of the plot works out at Rs 37,01,672.  On the basis of the sale consideration of Rs 40,00,000 indicated in the query, the amount of long-term capital gains would work out at Rs 2,98,328 on which a total tax of Rs 62,052 would be payable.  The cost inflation index for the financial year 2019-20 is yet to be notified and therefore, the computation have been made on the basis of the index applicable for the financial year 2018-19.  The amount of capital gain would be reduced in case the index for the financial year 2019-20 is taken into consideration.  The amount of fee deposit charges and expenditure on visit has not been considered for calculating the indexed cost as these are not likely to be considered as part of improvement expenditure.

Q.  I purchased ICICI Lombard shares (IPO) on September 25, 2017, at 661 per share. On January 31, its price was Rs 786.90 per share. If I sell it now at Rs 990 per share, what will be the acquisition cost (Rs 786.90 or Rs 661per share) for long-term gains?

— Prem Sagar

A.The computation of long-term capital gains in your case would be made on the basis of the fair market value as on January 31, 2018.  The fair market value means the highest price for such share on a recognised stock exchange on January 31, 2018.  Therefore, in case Rs 786.90 is the highest price on the recognised stock exchange as on January 31, 2018, it shall be taken at Rs 786.90.

Q. I have income only from two sources - interest from bank FDs and short-term capital gains by share market trading. In FY 2018-19, I have earned following income:-     1) FD interest: Rs 1,65,000   2) Short-term capital gain: Rs 90,000        Now, I want to file ITR for the first time. Which ITR form is applicable to me? Calculate my tax liability. — Rekha

A. The applicable form should be ITR-2.  The short-term capital gain would be reflected under the head "Capital Gain" for which there is a separate column in the income-tax return (Refer Schedule CG).