Tax Column

I am an individual. I was told that gift from relatives is exempt and not taxable. I have received a gift of Rs10 lakh from my cousin brother, i.e. from my mother’s sister’s son. As this was a gift from a relative, I have not offered it to tax in my return for assessment year 2018- 19. Is my action correct? It is true that gifts received from relatives are not taxable in the hands of the recipient. However, “the relative” must qualify in the category of relatives defined under the Income Tax Act as under: 

Jayesh Dadia
Chartered Accountant 

(a) In case of an individual (i) spouse of the individual; (ii)brother or sister of the individual; (iii brother or sister of the spouse of the individual; (iv) brother or sister of either of the parents of the individual; (v) any lineal ascendant or descendant of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; (vii) spouse of the person referred to in clauses (ii) to (vi) 

(b) In the case of Hindu Undivided Family, any member thereof. You will observe that your cousin brother who is your mother’s sister’s son does not qualify within the definition of “relative” and, therefore, the gift received from your cousin brother is taxable. Since you have already filed your return, I would advise you to file a revised return and offer Rs10 lakh under section 56(2)(x) of the Income Tax Act and pay tax immediately. If the IT department detects the mistake, then you would also be liable to pay penalty which could be equivalent to 200% of the tax amount. 

I am an individual having income and loss under various heads such as business, property, capital gain and interest. In business, I have suffered a loss, while I earned incomes from property and interest. Under the head capital gain, I have also made short term capital loss and long term capital gain. Thus, overall I have made a loss.Can I set-off loss against income under different heads ? Can you enlighten the relevant provisions for set-off under the head ‘profit or loss’? 

Under section 71 of the Income Tax Act, set-off of a loss from one head against income from another head is permissible subject to certain conditions. Business loss (non-speculative) can be set-off against interest income, income from house property and capital gain. Business loss is not available for set-off against salary income. 

Long term capital loss can be set-off against long term capital gain as well as short term capital gain. 

Unabsorbed loss under the head business and capital gain can be carried forward for eight years. 

In your case, your business loss can be set-off against income from house property and interest income. If the business loss still remains, then it can be available for set-off against short term capital gain. Long term capital gain which you have earned can be set-off against short term capital loss as well as business loss, if any 

I am a non-resident for last two financial years, i.e. 2016-17 and 2017-18. Also, in the current financial year, I am going to be a non-resident because I am full time working in Dubai. I received notices for assessment years 2014-15 and 2015-16 that under FATCA, the Tax Department received information that I have earned certain dividend and interest income in USA. I genuinely don’t know whether I have earned these amounts in USA or not, as I never had any bank account in the US. Since I am a non-resident at present, am I supposed to reply these notices?If I don’t reply, what are the consequences? 

Although you are a non-resident, you are a citizen of India and, therefore,the provisions of Income Tax Act are applicable to you. It is also an admitted fact that you are resident in India during the financial years relevant to assessment years 2014-15 and 2015-16. Therefore, under the law, you are under obligation to reply the said notices. If you don’t reply to these notices, the IT department will reopen your assessment years 2014-15 and 2015-16 and would tax the foreign income in your hand. The department can then levy penalty and may initiate prosecution against you. Thus, non-response may lead to serious consequences. The ITdepartment can also investigate further and can invoke Undisclosed Foreign Income and Asset Act 2015. 

Alternatively, you can voluntarily offer the foreign income to tax and accordingly pay the taxes and inform the department that though you have not earned foreign income,you wish to buy peace and avoid litigation, so youare ready to offer the same as your income and accordingly pay your taxes. In this case, the department may take a lenient view. You may also ask for documentary evidence to substantiate that you have earned foreign income. If the department fails to prove, then the penalty and prosecution may not be initiated. It is a serious matter and, therefore, be careful and consult the tax expert.