Sole proprietor gifting through parents
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
13 July 2014
I work for a Sole proprietor and the proprietor has decided to pass on cash as gifts. Can this be routed through parents to save tax? Both my parents do not have income currently. Is this allowed for a proprietor to gift parents of an employee working for him? Will there be any tax implication on the proprietor?
14 July 2014
1. the cash given as gift wont be allowed as an expense unless the source of the cash is explained. if the source is not explained, penalties can be levied.
2. the amount received by the parent of the employee shall be included in their incomes.
2. the amount received by the parent of the employee shall be included in their incomes.
Querist : Anonymous
Querist :
Anonymous
(Querist)
14 July 2014
Can a movable gift deed be signed between the company and my parents to explain the source of cash?
25 July 2025
Great question! Here’s a breakdown:
1. Gift from Sole Proprietor to Parents of Employee
If the proprietor gives cash as a gift to someone (like parents of an employee), the gift is not an allowable business expense for the proprietor unless it’s a legitimate business expense (which gifting employee’s parents generally is not).
The Income Tax Department may disallow this expense, leading to higher taxable income and possibly penalties if the source of cash is unclear.
2. Tax Implications on the Parents Receiving the Gift
Gifts received by the parents from a non-relative (here, the sole proprietor is not a relative) and if the gift amount exceeds ₹50,000 in a financial year, it is taxable as income from other sources in the hands of the parents.
Since the gift is from the proprietor (not a relative), the parents will have to pay tax on the amount received if it crosses ₹50,000.
3. Is Gifting through Parents Allowed to Save Tax?
No, routing gifts through parents to save tax is not a valid tax planning method. The tax authorities scrutinize such arrangements.
The gift should be genuine, with proper documentation, and should reflect in books properly.
4. Movable Gift Deed Between Proprietor and Parents
A gift deed can be executed to document the gift, explaining the source of cash.
But this will not automatically make the gift expense allowable for the proprietor.
The gift deed helps in proving the transaction but does not exempt the recipient from tax if it crosses exemption limits.
Also, gift deeds need to be registered if immovable property is involved; for movable property or cash, registration is not mandatory but recommended.
Summary:
Aspect Explanation
Expense claim by proprietor Not allowed unless genuine business expense
Tax on parents (gift recipients) Taxable if gift > ₹50,000 from non-relative
Gift deed Helpful for documentation but doesn’t waive tax
Bottom line: Gifting cash through employee’s parents to save tax is not advisable. If the proprietor wants to reward employees, it’s better to give the gift directly to employees (under prescribed limits for tax exemption). Otherwise, proper professional tax planning advice is recommended.
1. Gift from Sole Proprietor to Parents of Employee
If the proprietor gives cash as a gift to someone (like parents of an employee), the gift is not an allowable business expense for the proprietor unless it’s a legitimate business expense (which gifting employee’s parents generally is not).
The Income Tax Department may disallow this expense, leading to higher taxable income and possibly penalties if the source of cash is unclear.
2. Tax Implications on the Parents Receiving the Gift
Gifts received by the parents from a non-relative (here, the sole proprietor is not a relative) and if the gift amount exceeds ₹50,000 in a financial year, it is taxable as income from other sources in the hands of the parents.
Since the gift is from the proprietor (not a relative), the parents will have to pay tax on the amount received if it crosses ₹50,000.
3. Is Gifting through Parents Allowed to Save Tax?
No, routing gifts through parents to save tax is not a valid tax planning method. The tax authorities scrutinize such arrangements.
The gift should be genuine, with proper documentation, and should reflect in books properly.
4. Movable Gift Deed Between Proprietor and Parents
A gift deed can be executed to document the gift, explaining the source of cash.
But this will not automatically make the gift expense allowable for the proprietor.
The gift deed helps in proving the transaction but does not exempt the recipient from tax if it crosses exemption limits.
Also, gift deeds need to be registered if immovable property is involved; for movable property or cash, registration is not mandatory but recommended.
Summary:
Aspect Explanation
Expense claim by proprietor Not allowed unless genuine business expense
Tax on parents (gift recipients) Taxable if gift > ₹50,000 from non-relative
Gift deed Helpful for documentation but doesn’t waive tax
Bottom line: Gifting cash through employee’s parents to save tax is not advisable. If the proprietor wants to reward employees, it’s better to give the gift directly to employees (under prescribed limits for tax exemption). Otherwise, proper professional tax planning advice is recommended.
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