I-T Act exempts tax on money, property received during marriage

1. B. PRABHU VERLEKAR

1. I have won in recent Goa Zilla Parishad elections as independent candidate. Seeing my performance and popularity, I have received offer from a well-known Mining Group that I should stand for elections for next Assembly Elections which will be fully funded by them, with the understanding that I should support their cause whenever needed. I will be given Rs 1 crore to prepare groundwork, support staff and chauffer driven car. Similar offers are received by few other candidates who have chances of winning. I am inclined to accept the offer as I don’t have any financial backing. Please guide in the matter to avoid tax risk?

Name and place withheld on request

As per the current legal framework, since you are not yet a candidate under the election law and since elections have not been notified, any funds you receive as donations towards election expenses would be considered illegal. Such funds can also be taxed at a flat rate of 30% under the prevailing income tax laws. To address this issue, it is advisable that you open a separate current bank account, clearly distinct from your personal accounts. This account should bear a designation such as “Shri [Your Name] – Political Activities Account” and must not be used for any personal expenditures. All donations should be accepted only through cheques, RTGS, or NEFT methods, ensuring that the donor’s PAN and full identity are recorded. Additionally, it is crucial to maintain proper documentation for all expenses incurred from this account. You should also  obtain a written declaration from the Mining  group, stating that the donations are being given voluntarily for the purpose of political awareness, without any expectation of favour or consideration in return. Once the elections are officially declared and you file your nomination, this account should be closed. Subsequently, a new account should be opened and designated as “[Your Name] – Election Expense Account.” After the conclusion of the election process, all records and statements related to this account should be submitted to the office of the Election Commissioner.  In case of any inquiry, you  should claim that this election bank account is held in fiduciary capacity.

1. We are senior citizen couple. Since our total income is well below exemption limit of Rs. 3 lakhs, we don’t file any tax returns. Last year we had gone on European tour through a tour operator which cost Rs. 3 lakhs. This was arranged by my daughter in USA. I have now received notice from income tax office to file tax return. Is this notice legal? What are the consequences?

Ramesh G. Shanbaugue- Panaji

It is both legal and valid for the Income Tax Department to issue a notice requiring you to file a tax return, even if your total income falls below the basic exemption limit. The Income-tax Act, 1961, along with Rule 12AB and Section 139(1), mandates compulsory filing of tax returns in certain circumstances. High-Value Foreign Travel: If your expenditure on foreign travel amounts to Rs 2 lakh or more for yourself or others. Significant Electricity Expenditure: If your electricity expenses exceed `1 lakh in a financial year. Large Cash Deposits: Cash deposits exceeding `1 crore in one or more current accounts, or cash deposits totalling more than `50 lakh in savings accounts. Tax Deducted at Source (TDS) / Tax Collected at Source (TCS): If TDS or TCS amounts to Rs 25,000 (or Rs 50,000 for senior citizens) on your PAN. Property Transactions: If you have purchased or sold property during the year, it triggers the requirement to file a tax return. Foreign Assets and Income: Holding a foreign bank account, owning foreign property, shares, or investments, or receiving any foreign income, regardless of the amount. Once a notice under section 139(1) or 142(1) is issued, filing your tax return becomes mandatory, regardless of your income level. In your case, since your foreign travel costs exceeded Rs 2 lakh, the notice to file a tax return has been issued appropriately. Failure to comply with this notice can result in a penalty of up to Rs 5,000 under section 234F of the Income-tax Act. If you neglect to file  tax return ,ex-party assessment will be done with avoidable tax demand.

1. My industrialist Marwari friend has remarried his wife of 50 years following all marriage rituals including “Saptapadi” in presence of our Swamiji. The couple has received substantial gifts in lakhs in cash, jewellery and clothes at “Pehrwani” ceremony. Will they be exempted from income tax since gifts received in marriage are exempt under law.

Dr. Harishkumar J. Aggrawal – Dona Paula

Section 56(2)(x) of the Income-tax Act provides an exemption for any sum of money or property received by an individual on the occasion of his marriage. Notably, the Act does not define the term “marriage,” nor does it specify that the exemption is restricted only to the first marriage. The critical factors for availing the exemption are the existence of a marriage ceremony and a direct connection between the ceremony and the gifts received. Furthermore, tax law does not prohibit remarriage, and such remarriages are recognised as legally valid under the Hindu Marriage Act and the Special Marriage Act. As a result, the exemption under Section 56(2)(x) cannot be denied solely because the individual was previously married to the same spouse. A counter argument that can be raised by an Assessing Officer is that a person must be unmarried to contract a marriage. If the couple is already married, the function may be construed as a marriage anniversary rather than a marriage ceremony, and thus, the exemption would not be available. However, since there is no specific Tribunal/ High Court/ Supreme Court ruling on this issue, it is advisable to consult with a tax expert to address this issue, since stacks are high.

The writer is well established, senior practicing chartered accountant with wide experience in taxation and finance. He is also a strategist in turn round management of institutions.