Gifts in excess of Rs50,000 per annum are taxable
Q: I have been receiving gifts from friends and relatives. Since I am resident in India for tax purposes, I have got a notice from the tax department seeking information about the donors. Some of them are reluctant to give information or confirm the gift. What would be the consequences? A: Gifts received in excess of ₹50,000 per annum from non-relatives are treated as income which is taxable under section 56 of the Income-tax Act. On such amount, tax would be payable at the normal rates of incometax applicable to you, subject to the initial exemption of ₹250,000. However, it is necessary that these are genuine gifts.
If the genuineness of the gifts cannot be established by receiving confirmation from the persons making the gifts, the amounts credited to your bank account would be treated as cash credits under section 68 of the Income-tax Act. The implication of such unexplained amounts is that they would be treated as unexplained income under the aforesaid provision. Such income would be taxed at the flat rate of 60 per cent without getting the initial exemption of ₹250,000. Further, penalty may also be leviable. Q: I have been involved with maintenance of dry ports. On retirement, I want to return to India. Is there any scope for consultancy if new dry ports are likely to come up in India? A: The government has announced that it proposes to revamp about 300 dry ports across the country. This is being done to ease infrastructural bottlenecks faced by exporters and importers. In order to boost foreign trade, the Commerce Ministry has started the process of reviewing laws governing dry ports. The object is to modernise these ports and bring them up to global standards.
The government also proposes to give subsidies and to develop a mechanism for funding modernisation of the ports. The Railway Ministry is also keen on the development of dry ports because these ports will be linked with the railway network. Thus, cargo will be delivered directly from the trains to the ships at the port, which will also reduce dependence on road transport vehicles. Once the dry ports are fully operational, the transaction costs involved in trade will reduce substantially. Q: I am attached to a multinational company in the Gulf. This company provides services for registering domain names. No employee of this multinational company will be visiting India. I want to know whether the fees earned by this company for rendering such services will be taxable in India or not. A: Courts have generally taken the view that income earned for services provided by registrars is taxable as royalty. According to courts, domain names, Internet sites, etc., are entitled to protection as a trademark. The use of a trademark and consideration received in respect thereof falls within the definition of royalty under most double tax avoidance agreements as well as under the Indian law.
The services rendered by the registrar pertain to checking the availability of the desired domain name, facilitating registration and assigning a unique IP address for the domain name. Records have to be maintained of the domain names and their IP address. Therefore, though no employee would be visiting India and though the domain name registrar may not have a place of business in India, the fees earned for providing the aforesaid services would be taxable in India as royalty. Hence, tax would be deducted at source every time payment is made to the foreign company.