Dushyanth, a retired school teacher withdrew a sum of Rs 20 lacs from his PPF during FY 2020-21 and transferred the funds to his son Bharath as a gift for purchasing a house property. Bharath purchased a flat using his own savings and gift from his father apart from availing a housing loan. Gift received from relatives is exempt under the Income Tax Act. Should Bharath disclose the gift in his ITR for FY 2020-21?
EXEMPT INCOME
Income Tax Act 1961 exempts certain income. But this exemption does not relieve the assessee from not declaring it in the income tax returns. The ITR forms have a specific schedule – EI for declaring exempt income.
Maturity proceeds from EPF, PPF and gift received are some of the incomes which are exempt under the Income tax Act 1961.
SOURCE OF FUNDS
It is quite common in India to transfer property or money as gift. Gifting of a sum of Rs 20 lacs by Dushyanth to his son Bharath is exempt under the Income tax Act. If Bharath does not declare this 20 Lacs as exempt income in his ITR, it would be difficult to explain the source when there is query from the Income Tax department.
One should keep in mind that unexplained income shall be taxed at 60% plus penalty. Hence it is advisable to declare this gift as exempt income in his ITR for FY 2020-21.
DOCUMENTATION
Tax authorities have increased the scrutiny on high value transactions. One should keep in mind that all high value transactions are reflected in 26AS-SFT and AIS. It is good practice to support every gift transaction with a gift deed.
The drafting and documentation with respect to gifts might differ based on the nuts and bolts of each transaction. But it is prudent to exercise caution and maintain appropriate records to justify the genuineness of the transactions.
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