Sunday, June 30, 2013

Gift Tax

Definition of Gift Tax

Gift means presentation of something by one person to another without consideration. According to Section 2(8) of the Gift Tax Act, 1990, gift means the transfer by one person to anther of any movable or immovable property voluntarily and without consideration of any money or money’s worth. The value of gift should be the fair market value of the property transferred as determined by the Deputy Commissioner of Taxes and where such value cannot be determined, the rules prescribed in Section 5 of Gift Tax Act, 1990 will be applied.

The legal elements of Gift Tax

The following legal elements are observed in the Gift Tax Act, 1990:
               i)     Transfer of Property i.e. gift mist be transferred to the beneficiary.
              ii)     The transfer must be an existing property.
             iii)     The transfer must be voluntarily and without or with inadequate consideration in money or money’s worth.
             iv)     Minimum taxable limit of Gift is Tk, 20,000.
               v)     Gift Tax is chargeable on gifts made in income year.
             vi)     The deputy commissioner of Taxes will make assessment and determine tax liability.

           vii)     For movable gift, property should be transferred physically but for immovable gift, documentary transfer is affected.

Features of Gift
By analyzing the definition of gift, the following features are observed:

1) Transfer of property: To be gift there must be a transfer of property. Here property refers to the movable and immovable property. Transfer may also take  in the form of release discharge surrender forfeiture or abandonment of a debt, contract, actionable claim or any interest in property in favor of others.

2) Involvement of two parties: Gift must be made by one person to another person. Here person means any individual, Undivided Hindu family, company, Corporation, Association of persons, etc.

3) Existing property: Gift must be made of an existing property- either movable or immovable. any future proprietorship or expected property can not be included in the list of gift items.

4) Voluntary Transfer: Gift should be made voluntarily. Transfer of property by force or by any undue influence can not be treated as gift.

5) Without consideration: Transfer of property as gift should be made without any consideration. If any consideration is received by the downer from the Donne for transfer of property then it can be treated as gift up to the value of consideration.

Valuation of gift
According to section 5 of Gift tax act. 1990 the valuation of gift for tax purpose is done in the following ways:

1) The value of the property for the gift tax purpose would be the value that the property is likely to fetch, if sold in the open market.

2) If the gifted property is not salable, its value would be as determined according to the
rules prescribed, such as

a)     Insurance policy = Surrendered cash value at times of gift.
b)     Share in the pvt. Company= Intrinsic value attributable to share holding.
c)     Share value/proportionate value of partnership. It will be ascertained as follows:

# Excess of market value of the assets over liabilities of the firm is to be ascertained.
# Such excess / surplus value is to be allocated among the partners according to profit
Sharing ratio
# Share of above surplus plus capital provided by the partners would be the value of interest of each partners.

d) Value determined by the national board of revenue for any other gifts which are not salable in the open market.

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