Employees receiving gifts worth over Rs50,000 liable to pay tax

06 February 2017

The government, which imposed a ban on cash transaction of more than Rs3 lakh, is looking at more ways to plug loopholes that facilitate tax evasion and has now proposed a tax on gifts and other largesse to employees valued at over Rs50,000.

Employees receiving any largesse from their company or gifts from other sources by virtue of their position in the company will now have to pay tax if the gift is valued at more than Rs50,000, according to changes made in Budget 2017-18, reports quoting revenue secretary Hasmukh Adhia said.

The Finance Bill 2017 has introduced an amendment to Section 56 of the Income Tax Act, which prescribes tax treatment of 'income from other sources.'

''Right now, there is a provision that if you give a gift to any individual above Rs50,000 then it will be taxed,'' the Hindu BusinessLine quoted Adhia as saying in an interview. ''But that does not apply to companies. Now we have made it applicable to companies as well. People used to take gifts in companies and not pay tax on it.''

''The earlier provisions were that if you get more than Rs50,000 from anybody but your close relatives, then the amount was subject to taxation,'' Surendra Prakash Singh, senior director at Deloitte India, said. ''It would not be easy to avoid. It would be very liable to be detected during the scrutiny process, if your case comes up. This is clarificatory in nature and in line with the concept of taxing large gifts, when it was first introduced.''

The move is aimed at tapping into companies that offer largesse to employees rather than pay taxes. Such cases of employers showering employees with gifts such as flats,  cars, etc, have been reported in recent times and the government hopes to give a big boost to revenue collection through these.

Section 56 of the Income Tax Act prescribes the kinds of gifts and the sources of such gifts to be exempt from tax (close family, on the occasion of the marriage of the individual, by way of inheritance, for example).

The Finance Bill 2017 seeks to widen the scope of the section, by applying it to more kinds of assessees.

''It is proposed to insert a new clause (x) in sub-section (2) of the said section so as to expand the scope of the provisions of the said section to all categories of assessees so that the assets received without or inadequate consideration may be brought to the tax,'' according to the Finance Bill.

According to the revenue secretary, there was a need to continuously update the provisions of the Income Tax Act since people were always looking for ways to evade tax.

''Why income tax has become such a voluminous issue is that if you do anything, they will find a number of ways to get around it,'' Adhia said. ''We have to plug the loophole. So a new section will be created. And once that section is created, there will be people finding a way around that too. And so there will be provisos upon provisos upon provisos.''

Meanwhile, the government has prescribed a steep penalty on those accepting cash in excess of Rs3 lakh, in any transactions, beginning 1 April.

The Budget has proposed a ban on cash transaction of more than Rs3 lakh, Adhia said, adding that the penalty for doing cash transaction will be steep and the receiver will have to pay an amount equivalent to the cash received.

This means that anyone accepting, say Rs4 lakh in cash in a transaction will have to pay Rs4 lakh as penalty.

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