Valentine’s day is around the corner and I am sure you have already planned a surprise gift for your loved ones. One more thing I am sure of is that CARR students will plan a financial gift for their loved ones. And when it comes to financial gifts, the first choice will obviously be shares. But before you gift shares to your loved ones, you must consider the costs associated with it in the form of charges and taxation.

1. Charges for gifting shares:

Let us say that I have decided to gift a few shares of different companies that I think are good to my husband. It will cost me 0.03% (of gift value) or Rs.25/-, whichever is higher. Additionally, GST @ 18% will be levied on the charges. The Gift charge is charged per company or ISIN. The following example will clear the doubts –

I have decided to gift shares of Jubilant Food Works, Bharti Airtel, and D Mart, before we go ahead let me be very clear that this is not a recommendation. So, the gift charges will be:

There are a few things to keep in mind while calculating the charges
i. The highest closing price of the stock between NSE and BSE is considered for computation
ii. The charges are computed by considering the highest closing price on the day the gift transaction is processed
iii. Charges are rounded off to two decimal places
So that is it about the charges. Now there is another cost involved in gifting shares and that is taxation. Let us see what do we have there.

2. Taxation on gifting shares:

As per the Income Tax Act, 1961 a “gift” can be in the form of money and movable/immovable property that an individual receives from another individual or organization without making a payment. In legal terms, the person or organization providing the gift is termed the transferor while the gift receiver is known as the transferee.
Simplifying the definition further, examples of gifts that are taxable in India include:-
i. Money received by cash, draft, cheque, bank transfer, etc.
ii. Immovable property such as land, building, residential/commercial property.
iii. Movable property such as jewelry, shares, ETFs, bonds, paintings, sculptures, etc.

Now that we know what can be said as a gift let us understand the taxes levied on the transferor as well as the transferee

I. Tax in the hands of transferor:

II. Tax in the hands of transferee :

    A. On receipt of the gift

Section 56(2)(x) of the Income Tax Act, 1961 states that the Gift of movable property such as shares, ETFs, mutual funds, etc. received without consideration and exceeding Fair Market Value of more than Rs. 50,000 is taxable in the hands of the transferee as ' Income from Other Sources ' and tax should be paid at slab rates. This means if the gift amount is Rs. 50,001 then tax is to be paid on the entire Rs. 50,001 and not just Re. 1. Hope this point is clear. There are certain exemptions to it –
          a) Gifts received from any relative. Relative here means:
              a. in case of an individual—
                 i. spouse of the individual;
                 ii. brother or sister of the individual;
                 iii. brother or sister of the spouse of the individual;
                 iv. brother or sister of either of the parents of the individual;
                 v. any lineal ascendant or descendant of the individual;
                 vi. any lineal ascendant or descendant of the spouse of the individual;
                 vii. spouse of the person referred to in items (ii) to (vi); and
             b. in the case of a Hindu undivided family, any member of the HUF; or
          b) Gifts received on the occasion of the marriage of the individual; or
          c) Gifts received by way of inheritance.
In the above three exemptions, there shall be no tax irrespective of the fair market value of the gift received.

    B. On the sale of the gift

The subsequent sale of the gift by the receiver would be taxable under the head Income from Capital Gains. To determine the nature of capital gains whether STCG or LTCG, the holding period would be determined from the date of purchase by the previous owner i.e. the transferor till the date of sale by the transferee. To compute the capital gain, the cost of purchase by the transferor would be considered as the cost of acquisition.

I hope now you have got some clarity on the taxation of gifts. It can be confusing at times, so many people tend to simply ignore it. But, having an idea about taxation helps you take an informed decision. So, if you are planning to get a gift for your special ones this valentine’s day don’t forget to watch my valentine's day special video releasing on Saturday 12^th February 2022 at 9:00 PM on my YouTube channel. Until next time!

Let’s say you have received a job opportunity in a big city, far away from your home town. It’s the job of your dreams in the city of dreams, Mumbai!
While discussing with your friend about moving to Mumbai for this amazing job, he tells you about how exciting but challenging it is to live in Mumbai; the crowded local trains, the need for you to constantly be on your toes, and the most important thing, the rent expenses being sky-high.
After giving it a thought, you realize, you are quite excited about the fast life and travelling in local trains, but, oh no!! What about the high rent expenditure? How will you manage that? Will your employer give you any extra money in addition to your salary for the rent expense?

Let’s find out...

Why HRA?

Salaried individuals often need to move out of their respective home towns to big cities for work. Most of them opt for living in an apartment on rent, rather than purchasing property, as it is economically beneficial for them.Keeping the high rental expenses in mind, many employers choose to give an allowance for the rent paid by their employees. This allowance forms part of their salary.

What is HRA?

HRA (House Rent Allowance) is a benefit given by the employer to the employee for his house rent expenses. Okay then! You check your offer letter and YASS! Your problem is solved! Your gross salary includes HRA! But wait, what about the increased tax liability on the increased income? Well, that problem will also be solved in a few minutes!

Tax benefits of HRA
Although the allowance leads to an increase in gross salary, it is not fully taxable under the Income Tax Act, 1961. As per section 10(13A) of the Income Tax Act,1961, read with Rule 2A of the Income Tax Rules, the least of the following will be exempted, and will not form part of the taxable income:

1. Actual HRA received
2. 40%/50%* of salary**
3. Actual Rent paid in excess of 10% of salary**

Salary for this purpose = Basic salary + Dearness allowance (In terms i.e. forming part of retirement benefits)
** 50% for metro cities (which includes Chennai, Kolkata, Delhi, Mumbai) and 40% for other cities
I know, this complex calculation is beyond the understanding capacity of a layman. But don’t worry, let’s see some examples to understand this calculation better.

Example 1:
Let’s say, Mr P, residing in Mumbai has the following receipts from his employer:
Basic Salary (pa) Rs.8,50,000
DA (In terms) Rs.20,000
HRA received Rs.4,20,000
Actual rent paid Rs.5,30,000
Therefore, the exemption shall be the least of the following.
1. Actual HRA received – 4,20,000 
2. 50% of salary - 4,35,000
3. Actual rent paid (–) 10% of salary – 4,43,000 (5,30,000 – 87,000)

Exemption = Rs.4,20,000

 

Example 2:
Mr. X, residing in Pune has the following receipts from his employer:
Basic Salary (pa) Rs.6,50,000
DA (In terms) Rs.15,000
HRA received Rs.2,40,000
Actual rent paid Rs.3,00,000
Therefore, the exemption shall be the least of the following:

1.  Actual HRA received - Rs.2,40,000
2 .40% of salary – Rs.2,66,000
3. Actual rent paid (–) 10% of salary – Rs.2,33,500 (3,00,000-66,500)
Exemption = Rs.2,33,500

 

 

Some important points to keep in mind:

1.From FY 2020-21 (AY 21-22), taxpayers have an option to choose from two tax regimes, old or new. So, individuals opting for the new tax regime will not get the benefit of any exemptions, which includes HRA. However, if an individual chooses to opt for the old tax regime, he/she will get the benefit of the exemption.
2.HRA is fully taxable for employees who do not pay any rent or the accommodation occupied is owned by him/her.
3.To avail of the HRA exemption, the employee has to provide rent receipts to the employer as proof of rent payment.
So, I hope you now know what HRA (House Rent Allowance) is and how it is taxed. Until next time!

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