Tax Free Gifting!

Giving gifts to near and dear ones is very much prevalent in our Indian culture. Generally, gifts are given to express love and affection. Sometimes, we may also help the needy one by providing some monetary help. However, Gifts can also be good tax planning tools.

As per Income Tax Provisions the following income shall be chargeable to Income Tax under the head ‘Income from other sources', Where an individual or a Hindu undivided family receives, in any previous year, from any person or persons:

a) Any sum of money, without consideration, the aggregate value of which exceeds Rs.50,000/-, the whole of  the aggregate value of such sum;

b) Any immovable property:
i) without consideration, the stamp duty value of which exceeds Rs.50,000/-, the stamp duty value of such property;
ii) for a consideration, which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/-, the difference between the stamp duty value of such property and the consideration received.

c) any property, other than immovable property,:
i) without consideration, the stamp duty value of which exceeds Rs.50,000/-, the stamp duty value of such property;
ii) for a consideration, which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/-, the difference between the stamp duty value of such property and the consideration received.

Provided further that this clause shall not apply to any sum of money or any property received:
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer or donor, as the case may be;

Please, note that gifts received from following relatives (donors) are tax free for Donor as well as Donee.

List of Male Donors: 
Father, Brother, Son, Grand Son, Husband, Sister‘s Husband (Jija), Wife’s Brother (Sala), Husband’s Brother (Dewar), Mother’s Brother (Mama), Mother’s Sister’s Husband (Mausa), Father’s Brother (Chacha/Tau), Father’s Sister’s Husband (Fufa), Grand Father (Dada,Nana), Daughter‘s Husband (Jamai), Spouse’s Father (Sasur), Spouse Grand Father (Dada Sasur)

List of Female Donors: 
Mother, Sister, Daughter, Grand Daughter (Poti) Wife, Brother’s Wife (Bhabhi), Wife’s Sister (Sali), Husband’s Sister (Nanad), Mother’s Sister (Mausi), Wife’s Brother’s wife (Sala Heli), Father’s Brother’s Wife (Chachi or Tai), Father’s Sister (Bua), Grand Mother (Dadi, Nani), Son’s Wife (Bahu or Putra Vadhu), Spouse’s Mother (Saas)

In other-words, any lineal ascendant or descendant of Individual or Spouse of Individual is a relative.

Keeping in mind the above provisions, we can plan our gifts so as to reduce final tax liability. 

Tax Planning through Gifts to Wife or Son’s Wife:
Though gift received from a Relative is Tax Free, however, Gifts given to Wife or Son’s wife attract clubbing provision. This means any income arising from investment of such gifted sums will be clubbed in the hands of Donor i.e. Husband or Father-In-Law, as the case may be. So, it is always better to invest the gifted amount in such investment options, which are tax free. E.g. the amount can be invested in Listed Company Shares, PPF, ELSS Mutual Funds etc. As Long term Capital Gains earned on selling of these investments or any income accruing on these investments (like interest on PPF account) will be tax free, so it will not increase the tax liability of Husband. And later, wife can invest the earned income anywhere she likes and income on that investment will not be clubbed in Husband’s income.

Tax Planning through Gifts to Parents or Major Children:
If your income is taxable in 30% tax slab than you can plan gifts to your Parents, who are not having taxable income or the income is taxable in lower tax brackets. E.g. if one has surplus funds of 50 lacks, s/he can gift 25 lacks to his/her parents. And suppose his/her parents invest these funds in the bank FDR then each of them may get annual income of Rs.2,25,000/- (say @9%), which will not be liable to any tax. If the same income is taxed in the individual hands, the tax liability would have been Rs.1,35,000/- (@ 30% on 4,50,000/-). In this way, one may save substantial amount of tax year after year. Similarly, if one has major Childrenm who are yet to earn any income then money can be gifted to them. So, that an additional exemption limit and benefit of lower taxation slab can be utilized.

Tax planning through Gifts on occasion of Marriage:
1) Gifts received on occasion of marriage of an Individual are tax free in the hands of Giver and receiver both,
2) Clubbing provisions are not attracted, 
So this provision can be utilized to its utmost benefit.
Gifts valuing below Rs.50,000/- (in aggregate during a year)
Gifts of aggregate value upto Rs.50,000/- can be accepted from any one without attracting any tax liability.

Gifts under a WILL:
Gifts to any person under WILL are Tax Free.

In Gist: 
Gifts can always be planned from a person in a higher tax bracket to a lower tax bracket or Nil Tax bracket. Please note that the gifts should be reasonable and justifiable. It’s always better to prepare a Gift Deed for proper recording and valid proof of transaction. Duly incorporate therein the PAN and Address of the Donor, nature of Gift, Value of Gift, Reasons for Gifting, etc. Take the benefit of same before they disappear!

Official Music Video: Anjana Main Chala

First musical love story video titled "Anjana Main Chala" produced by my sister Priyanka Agarwal under her own production house, Creative Sailor Productions.

Know Meaning of Characters in Income-Tax PAN

Most of the readers of this blog would have PAN (Permanent Account Number) issued by the Indian Income-Tax Department. However, do you know what does the characters in the PAN mean?

Below is the format of a PAN:

It is a 10 digit alpha-numeric number, where first five characters are letters, the next four numbers & the last one a letter again. These 10 characters can be divided in five parts explained below.

1. First three characters are alphabetic series running from AAA to ZZZ.

2. Fourth character of PAN represents the status of the PAN holder.

C — Company

P — Person

H — HUF(Hindu Undivided Family)

F — Firm

A — Association of Persons (AOP)

T — AOP (Trust)

B — Body of Individuals (BOI)

L — Local Authority

J — Artificial Juridical Person

G — Government

3. Fifth character represents first character of the PAN holder’s last name/surname. In case of all other assesees 5th field will be first letter of Name/First Name.

4. Next four characters are sequential number running from 0001 to 9999.

5. Last character in the PAN is an alphabetic check digit.

Now a days, the DOI (Date of Issue) of PAN card is mentioned at the right (vertical) hand side of the photo on the PAN card.

-Tanmay

What is Ferrite Core?

In electronics, a ferrite core is a type of magnetic core made of ferrite on which the windings of electric transformers and other wound components such as inductors are formed. It is used for its properties of high magnetic permeability coupled with low electrical conductivity (which helps prevent eddy currents). Because of their comparatively low losses at high frequencies, they are extensively used in the cores of RF transformers and inductors in applications such as switched-mode power supplies, and ferrite loop stick antennas for AM radio receivers.

Difference in ‘Contract of Employment’ & ‘Contract for Employment’?

When there is ‘Employer/Master’ & ‘Employee/Servant’ relationship:

Where employer not only directs ‘what & when a thing has to be done’ but also ‘how it has to be done’ & the employee is bound to carry out employer’s instructions, it is called ‘Contract of Employment’. E.g. an employee of ABC Limited has a ‘Contract of Employment’. Here the fee received comes under ‘Salaries’.

Where As

When the employer merely directs ‘what has to be done’ while the methodology for carrying out the job is left to the discretion of the employee, it is called ‘Contract for Employment’. This applies especially to professionals & technocrats who take up assignments. E.g. Chartered Account working for ABC Limited has a ‘Contract for Employment’. Here the fee received comes under either income from ‘Business or Profession’ or income from ‘Other Sources’.

Unethical Flinching of Customer Money by Reliance Fresh Staff

Hi All

I want to bring one fact into your notice that might look to be very small. However, when seen from the broader perspective, the figures are too big.

I have seen & several others might have also noticed that whenever a customer purchases item(s) from the Reliance Fresh store/outlet. If the total amount has some non-zero paise / fractional rupee figures between 51 & 99 (like Rs 213.67), the system rounds off to lower 50 paise (in this example Rs 213.50). That is, the customer gets the discount of 1 to 49 paise (in this case 17 paise). This is done because it is difficult/not possible to pay cash in the denominations between 51 to 99 paise. I appreciate that the company is not rounding to the upper one rupee. This case is only applicable when customer wishes to pay by cash. In case of credit/debit card, the exact amount is debited because that is possible electronically which is also correct.

However, in most of the centers like in Reliance Fresh outlet at E-18, Gautam Marg, Vaishali Nagar, Jaipur, the staff never gives back the 50 paise in spite of the fact that they have the coins in their cashbox that I personally have seen several times. Most of the people don’t care for 50 paise & the staff also remains not in a mood to pay this 50 paise. They try to keep 50 paise coins hidden in the cashbox. On asking, they reply we don’t have change. One might think that why I’m crazy in illustrating on such small amount as 50 paise. The point here is that the amount taken up by the staff is unethical that they flinch from the customer’s pocket.

Let’s check the figures:

No. of Cash Transactions
Cheating Amount
Per Instance
1
Rs. 0.50
Per Day Per Store (Typical Figure on Lower Side)
200
Rs. 100
Per Day in 453 Reliance Fresh Stores
90600
Rs. 45,300
Per Month in 453 Reliance Fresh Stores
2718000
Rs. 13,59,000
Per Year in 453 Reliance Fresh Stores
32616000
Rs. 1,63,08,000
Average Employee Per Reliance Fresh Store
6

Total Employees in 453 Reliance Fresh Stores
2718

Cheating Amount Per Reliance Fresh Store Per Month
Rs. 3,000
Cheating Amount Per Reliance Fresh Store Per Year
Rs. 36,000
Share Per Employee Per Month

Rs. 500
Share Per Employee Per Year

Rs. 6,000

This also clarifies, if the rounding to the next rupee is done by the company, then how much additional revenue it gets from the customers. Now, if you all check your last telephone bills, cell-phone bills, etc., you will realize how much revenue the companies are getting from your pocket out of this rounding off!!

I therefore, believe that Reliance Fresh & other similar companies should give the discount to a lower one rupee or carry forward the fractional amount to the next bill (cycle) (if possible). E.g. this can be easily done in cases like post-paid telecom bills. This will increase customer satisfaction & company can also illustrate this as an example of being an ethical company in the competitive market.

The author is a consumer protection activist who speaks both in the mutual favour of the customer as well as the company in question.

Tanmay Agarwal
(Author of this Article)
http://www.dentistswati.com/tanmay-agarwal.php / tanmay@dentistswati.com

Kotak Life Insurance: Sub-Standard Marketing Techniques

Hi All

I’m writing this blog for the public awareness & interest. I suffered from the sub-standard marketing technique(s) that were used by one of the corporate agents "Corporate Services" (IRDA-1284248 / A0005469) of Kotak Life Insurance in Jaipur.

This corporate agent makes calls on behalf of Kotak Mahindra Life Insurance. They inform that on the occasion of successful completion of three years of the company, they have selected 10 lucky BSNL numbers out of 200 numbers for a prize. So, company is awarding “Fancy Gold Set” for the promotional publicity. And for receiving the prize, one needs to reach their office by 06:45 PM. The program shall commence from 7 PM onwards for 1 hour. They emphasize multiple times to reach empty handed & also assured that they won’t be asking to take any insurance policy or any type of membership. They take assurance from the person multiple times to confirm their presence in Kotak Life Insurance office.

As the prize is quite luring & seems to be real since the call is being made from a reputed company (very wrong impression), there must be an actual celebration & the genuine gift. The person from this agency also says that there would not be any word for accepting any policy of the company.

However, when one reaches the office, in no time, one will understand that there is no celebration. It is just a shoddy marketing stunt to call the couples for presenting the life insurance plans. Himanshu, the manager there forces to take the decision there itself without giving any time to think over such an important financial investment. They insist upon signing the form & providing a cheque (without date) with identity proof documents. On the refusal, they get irritated & behave rudely while closing the discussion. They also act as if they are doing some great favour to the couple by providing an opportunity that one cannot get anywhere else. Finally, it is very disappointing & unexpected to receive a gift that is hardly worth rupees ten to fifteen (Rs.10-15) from such a reputed company (as one carries the impression).

It clearly reflects the vulnerable state of the company that is forced to use such cheap marketing tactics to lure the customers & sale its policies. The company wastes the precious & highly valuable time in the non-sense stuff that is in vain. In fact the image of the company that one might carry before going over there gets spoiled with such incident.

I wrote to Mr. Gaurang Shah (Managing Director – Kotak Life Insurance) that it was my humbly suggestion that while marketing, wrong statements should not be used by the staff to lure the prospective customer because that creates a bad image in the mind of the customer & it replicates exponentially with time through word of mouth. I believe this aspect should get percolated to the staff below, if the management also believes in the same.
So, kindly take care from this insurance company.

Reviewer: Tanmay Agarwal, Jaipur (tanmay@dentistswati.com)