Gift of proprietorship firm

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 October 2013 I RECEIVED GIFT FROM MY FATHER A PROPRIETORSHIP FIRM WITH ASSETS & LIABILITIES WHOSE PROPRIETOR IS MY FATHER.HIS CAPITAL INFIRM IS TAKEN AS LOAN BY ME AS PER DEED. HOW WILL I SHOW THIS GIFT IN INCOME TAX.

Querist : Anonymous

Querist : Anonymous (Querist)

29 October 2013 I HAVE SHOWN AS LOAN on 1-4-12 . I RECEIVED GIFT ON 1-4-2012.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2024 When you receive a proprietorship firm as a gift from your father, along with its assets and liabilities, there are specific tax implications and considerations you should be aware of:

1. **Valuation of the Gift**:
- The gift of the proprietorship firm with its assets and liabilities needs to be valued as per the fair market value (FMV) as on the date of the gift. This valuation should include all assets and liabilities transferred.

2. **Income Tax Treatment**:
- **Gift Tax**: In India, there is no gift tax payable by the recipient (donee) on receiving a gift from specified relatives, which includes your father. Therefore, there is no immediate tax implication on receiving the proprietorship firm as a gift.
- **Capital Gains Tax**: Capital gains tax is not applicable on gifts received. However, if you later sell any assets of the firm, capital gains tax will apply based on the cost to your father.

3. **Recording the Gift in Books**:
- As per your description, you have recorded the gift as a loan from your father, which implies that you have treated the gift as a loan in your books of accounts. This can be a correct approach to maintain clarity in accounting, but it's crucial to ensure the gift is also documented properly with a gift deed.

4. **Income Tax Reporting**:
- In your income tax return, you need to disclose the receipt of the proprietorship firm and its assets and liabilities as a gift from your father under the section for exempt income or gifts received. You may need to attach a copy of the gift deed along with your tax return to substantiate the receipt of the gift.

5. **Loan Aspect**:
- Since you have treated your father's capital in the firm as a loan, ensure that the terms of this loan (if any) are documented clearly, including repayment terms and interest (if applicable). The interest on such loans, if any, should be accounted for separately.

6. **Professional Advice**:
- It's advisable to seek advice from a qualified tax consultant or chartered accountant to ensure compliance with all income tax laws and to handle the documentation and reporting requirements properly.
- They can guide you on how to correctly report the gift in your income tax return and handle any potential queries or assessments from the tax authorities.

In summary, while there is no tax liability on receiving a gift of a proprietorship firm from your father, proper documentation and reporting in your income tax return are essential. Ensure that you maintain clear records of the transaction and seek professional advice for any specific nuances related to your case.

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