FAQs on Taxes & Related ISSUES

CA (Dr.) Suresh Surana, answers readers' queries on various issues pertaining to taxes that need to be paid by the jewellers. Readers are encouraged to send in their questions and receive clarifications through this column.

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As an individual engaged in the business of gems and jewellery, I intend to gift certain gold jewellery to my daughter and niece. What are the income tax implications under Indian tax laws on such gifts, particularly with respect to capital gains, deemed income, or any other tax liability at the time of transfer or in the hands of the recipients?

Certain transactions are not considered "transfers" for the purposes of capital gains tax under the Income-tax Act of 1961. Any transfer of a capital asset by an individual or a Hindu Undivided Family (HUF) through a gift, will, or irrevocable trust is not considered a transfer, and as a result, the donor is not subject to any tax obligations under Section 47(iii) of the Act.

Further, if any person receives any property other than land or buildings in the following ways:

a. without any consideration - if the total market value of the property is more than Rs. 50,000, then the entire market value will be considered your income.

b. with consideration - if the amount paid by the recipient is less than the property's market value by more than Rs. 50,000, then the difference between the market value and what you paid will be treated as your income.

In the given situation, the tax implications would be as follows:

Gift to Daughter: Exempt from tax under Section 56(2)(x) since a daughter is considered a "relative." When your daughter receives gold jewellery as a gift, there are no income tax consequences. In order to accurately record the transaction, signing a written declaration or gift deed would be recommended.

Gift to Niece: Not exempt under Section 56(2)(x) since, a niece is not considered a "relative" for the purpose of Income Tax Act. Consequently, the gift of gold jewellery will be taxable in her hands if its value exceeds Rs. 50,000.