Any amount of money received as gift from relatives are exempted from Tax liability

Q. My name is Alex Chandy. I am a Government employee since 17 years. I am going retire from my job by taking VRS. I want to know in which event I would be liable for income tax if opt VRS?

A. Under the voluntary Retirement Scheme, the retiring employee receives lump-sum amount in respect of his balance period of service. Such amount is in the nature of advance salary. Clause (10C) of section 10 provides an exemption of Rs. 5 Lakhs in respect of such amount. This exemption is provided to mitigate the hardship on account of bracket creeping as a result of the recipient of the amount in lump-sum upon voluntary retirement. However, some tax payers have claimed both the benefit under clause (10C) of section 10 and 89. Both are sustainable.

Exemptions shall be available, subject to the following conditions: firstly, the compensation is received only at the time of voluntary retirement or termination of his services in accordance with any scheme or schemes of voluntary retirement or in the case of public sector company, a scheme of voluntary separation. W.e.f. assessment year 2004-05, even if the compensation is received in installments, the exemption shall be allowed. Secondly, the scheme of the said companies or authorities or societies or universities or the institutes referred to in clauses(vii) and (viii) above, as the case may be governing the payment of such amount, are framed in accordance with guidelines (including inter alia criteria of economic viability) as may be prescribed. In the case of public sector companies, if there is a scheme of voluntary separation, it shall also be according to the said prescribed guidelines.

Q. Hi I am Ajay Goswamy from Mumbai. My wife is working in a Private Company as a Legal Officer. She wants to open an account in a Public Provident Fund. I want details of the scheme especially, the tax liabilities and benefits.

A. Hi Ajay. PPF is a scheme, which is covered under Public Provident Fund Act, 1968. Any member of the public, whether in employment or not, may contribute to this fund. Therefore, even self­-employed persons may contribute to this fund. In other words, it is a scheme where there is assessees’ own contribution only. The employee can deposit can deposit money under PPF account in addition to his contribution to other provident fund schemes. In this scheme, there is no employers’ contribution. The minimum contribution to this Fund is Rs. 500 and maximum Rs. 70,000 per year. The contributions made to this scheme along with interests are repayable after 15 years, unless extended. The rate of interest, at present, under the scheme is 8% per annum.

Deduction under section 80C of the Income Tax Act is available from gross total income subject to the limit specified therein for the employees’ contribution towards Public Provident Fund. Deduction is not applicable to the employers’ contribution as there is employees’ contribution only. Any interest or lump-sum received from this scheme is fully exempted under section 10 (11) of the Income Tax Act.

Q. I am a P.G student. My parents gifted me 1.5 Lakhs Rs on my Birthday. I want to open a Fixed Deposit Account to invest this money. What are my tax liabilities in respect of this.?

A. Any individual, who receives any amount of money which exceeds Rs. 50,000/- from any person, without consideration, during a financial year is chargeable to income tax under the head “Income from Other Sources.” However, money received from relatives such as from father etc. are exempted from tax liability under this provision. Therefore, you will not be liable to income tax for the amount received by you from your parents. However, if you are investing this money in a FD Account, you will have to pay tax on the amount you received as interest from the FD Account.