Tax liability on gifts

This query is : Resolved

Kushal Shah (Querist)
Follow

15 July 2015 Tax liability???
An American citizen of Indian origin based in California, founded an American Company which has a branch in India (not a public limited company). He employed his uncle, ie, his fathers brother who is a doctor, on a retainer for professional medical services (after the uncle retired from salaried employment of another company) in India, in the early 2000s until late 2009. His uncle is now 87 years old and retired, is an Indian citizen living here, and files his returns.
American citizen first gifted his uncle stock options in the company in 2005 and 2008. Then, he made an outright gift of common stock to his uncle in 2011, 2013 and the last one in October 2014 for which there are stock certificates. Meanwhile, in 2009, the uncle had left the services of the company. These shares were never disclosed in the IT returns which were filed every year.
As it happened, the company was sold to another international company in April 2015. The first installment was paid out to the uncle in May 2015 after signing various documents. Proceeds of transfer of stocks are to be received in installments.
Given that the uncle had not disclosed any of the Stocks / shares received, in the IT Returns as assets held outside India in any of the years, and did not pay tax on it –
- Now, that the stocks are transferred and proceeds are received in installments from May 2015, should he pay advance tax on short term capital gains on sale of stocks for A.Y.2016-17 and disclose these in the regular IT Return for A.Y.2016-17 or should he file these under the new ‘Undisclosed foreign asset Bill’ and pay capital gains tax plus the penalty?
- If he must file it under the new bill, does that apply to the last lot of shares received in October 2014?
- The second installment comes in Feb 2016 and 2 or 3 more installments held in escrow account in late 2016. Should he pay tax on what is due in 2016 only or on the whole amount?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
Follow

15 July 2015 The shares were received as gifts from relative(american citizen) no tax payable on it. File a revised return disclosing the shares held for AY 2014-15. File return disclosing shares for AY 2015-16.
Compliance of FEMA regulations to be seen.
As the sale of company took place in April 2015 the capital gain is taxable in AY 2016-17 only. Pay advance tax and file the return for AY 2016-17 on due dates.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now