Tax Column

I am residing in India and own agricultural land where I have carried out agricultural activities. Now I have decided to give the agricultural land on rent. Whether the rent received would enjoy exemption from the Income Tax Act? [EasyDNNnews:PaidContentStart]

Yes, the rent received from leasing out the agricultural land is exempt from Income Tax under section 10 (1) of the Income Tax Act. However, you have to satisfy certain conditions. The land which you have given on rent must be used for genuine agricultural purposes such as growing crops, fruits or vegetables by the tenant. Thus, there is a direct nexus between the rent and the agricultural activities. But if the tenant uses the land for non-agricultural purposes such as a warehouse or residential house, then the rent received by you will be taxable in your hands.

Therefore, kindly ensure that the tenant uses the land wholly and exclusively for agricultural purposes. Kindly also ensure that even after the land is rented, it should be assessed for Land Revenue in India. 

Kindly also note that the rental income will be treated as agricultural income and would be added to your Other Income to determine your tax slab. This often pushes your non-agricultural income into a higher tax bracket, effectively increasing the tax you pay on your other income. 

I am a resident of India. My neighbours are an old age couple and I take care of them. Now, out of love and affection, they have decided to give me a new motor car as a gift. They are not my relatives. Whether receipt of motor car would be taxed in my hands, particularly when my neighbours are not my relatives?

Under section 56(2)(x) of the Income Tax Act, if you receive any property, in excess of ₹​​​​​​​50,000 without consideration, then such value is considered as taxable in your hands. However, on careful reading of section 56(2)(x) of the Income Tax Act, which talks about property which is specific in nature, motor car is not considered as property. Therefore, in my opinion, receiving a car as a gift from your neighbours should not trigger tax under section 56(2)(x) of the Income Tax Act. However, the Income Tax Officer may make proper inquiry to satisfy that there is a genuine gift. 

Therefore, you have to prepare proper paperwork supported by confirmation from neighbours explaining their source from where payment for the car was made. Also, you should establish that no business or professional connection is there with the neighbours; otherwise, the Income Tax Officer can consider it as Business Income under section 28(iv) of the Income Tax Act. In view of the above documents, in my opinion, the fair market value of the motor car which you receive as a gift cannot be taxed. If the amount is taxed by the Income Tax Officer, you will get relief from the Appellate Authorities. 

My father had a long medical treatment in the current financial year. He was hospitalised for a long time as well as had surgeries two times. The total cost incurred is approximately ₹60 lakh. We received f inancial help from neighbours, friends, office staff, etc., aggregating to `40 lakh. All this money was paid to hospital, doctors and incurred on medicine. Kindly let me know the income tax implications of ₹40 lakh in my father’s hands? 

₹​​​​​​​40 lakh is a significant amount of f inancial support. However, medical help received from non-relatives and non charitable trusts is subject to tax under section 56(2)(x) of the Income Tax Act. Under this section, any amount received in excess of ₹50,000 from non-relatives is taxable as Income from Other Sources. Although you have spent the entire money on medical treatment, no such deduction is available under section 56(2) (x) of the Income Tax Act. Therefore, in my opinion, the entire `40 lakh would be subject to tax if your case is picked up for scrutiny. 

However, you can sort out the payment of `40 lakh under different headings. If the amount is received from relatives defined in section 56(2)(x) of the Income Tax Act, then the amount is not taxable. Further, any amount received from Foundation / Trust registered under section 12AA of the Income Tax Act, then such amount is not taxable. Some amount which you received may be payable in future. This amount you may show as loan, which is not taxable under section 56(2)(x) of the Income Tax Act. But if you still find that none of the amount is falling under the above heads, then the only option is to offer to tax or consider the entire amount as loan payable, duly confirmed by the donor, so the same cannot be brought to tax in the current financial year. 

We would be happy to address your tax-related queries. Kindly share them with us at editorial@dsij.in
 

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