sir,
It assessess cash Gift to grandson rs:1 crore amount through on bank channel mode f.y.24-25 but assessess capital account balance rs:50 lacs in books as on Gift transaction date.
Question:
Assessess Gift transaction taxable or exempt f.y.24-25 .
- Gift from Grandparent to Grandson
Gifts made by a grandparent to their grandson are exempt from tax under Section 56(2)(x) of the Act if they are given:
Out of natural love and affection; and
Without any consideration.
Since a grandson is a relative as defined under Section 56, the gift of ₹1 crore is not taxable in the hands of the grandson.
- Assessing the Source of the Gift
The assessee (grandparent) gifting ₹1 crore should demonstrate:
The source of funds for the gift, especially since the capital account balance in the books is only ₹50 lakhs.
Supporting documentation, such as:
- Bank account statements showing the withdrawal or transfer of ₹1 crore.
-Any other legitimate sources of funds (e.g., sale of assets, loans).
( Note- His bank account showed adequate funds at the time of executing the gift,establishing its creditworthiness.)
If the source of the ₹1 crore gift cannot be substantiated, the tax officer may:
Question the genuineness of the transaction.
Treat the unexplained portion as unexplained income under Section 68, leading to taxation.
- Implications for the Grandson
The gift is exempt for the grandson since it is from a relative.
However, the onus is on the grandparent to prove the source of the funds.
- Potential Taxation Scenarios
If Source is Explained:
The gift remains tax-exempt for the grandson, and there is no tax liability for the grandparent beyond any routine tax on income used for the gift.
If Source is Unexplained:
The unexplained portion (₹50 lakhs or more) may be added to the grandparent’s taxable income as unexplained credits, attracting tax and penalties.
- Compliance Requirements
Gift Deed:
It is advisable to execute a gift deed to document the transaction formally, specifying the relationship and details of the gift.
Bank Record:
Ensure the transfer is through a traceable bank channel.
Conclusion
The gift of ₹1 crore to the grandson is exempt from tax for the grandson as per Section 56(2)(x). However, the grandparent must substantiate the source of funds for the ₹1 crore gift. If the source cannot be explained, the unexplained portion may be treated as income and taxed accordingly.
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