Company staff must pay tax on gifts

Tax applicable on gifts valued at more than Rs. 50,000, whether received from companies or others
Company employees receiving large gifts, whether from the company itself or from somebody else, will now have to pay tax if they are valued at more than Rs. 50,000, according to changes made in this Budget, Revenue Secretary Hasmukh Adhia told The Hindu .

The Finance Bill 2017 has introduced an amendment to Section 56 of the Income Tax Act, which delineates the tax treatment meted out to ‘income from other sources.’
“Right now, there is a provision that if you give a gift to any individual above Rs. 50,000 then it will be taxed,” Mr. Adhia said in an interview. “But that does not apply to companies. Now we have made it applicable to companies as well. People used to take gifts in companies and not pay tax on it.”
“The earlier provisions were that if you get more than Rs. 50,000 from anybody but your close relatives, then the amount was subject to taxation,” Surendra Prakash Singh, senior director at Deloitte India said. “It would not be easy to avoid. It would be very liable to be detected during the scrutiny process, if your case comes up. This is clarificatory in nature and in line with the concept of taxing large gifts, when it was first introduced.”
Non-cash gifts
According to tax experts, a large number of companies reward or compensate their senior employees with non-cash gifts, which will now be taxed.
Section 56 outlines the kinds of gifts and from whom they can be received to still be exempt from tax (close family, on the occasion of the marriage of the individual, by way of inheritance, for example). But the Finance Bill 2017 seeks to widen the scope of the section, by applying it to more kinds of assessees.
“It is proposed to insert a new clause (x) in sub-section (2) of the said section so as to expand the scope of the provisions of the said section to all categories of assessees so that the assets received without or inadequate consideration may be brought to the tax,” according to the Finance Bill.
The Revenue Secretary said that there was a need to continuously update the provisions of the Income Tax Act since people were always looking for ways to bypass and evade tax.
“Why income tax has become such a voluminous issue is that if you do anything, they will find a number of ways to get around it,” Mr. Adhia said.
“We have to plug the loophole. So a new section will be created. And once that section is created, there will be people finding a way around that too. And so there will be provisos upon provisos upon provisos.”
The Finance Bill 2017 also states that the existing exceptions contained in the section are proposed to be rationalised by including certain additional exceptions that will be added subsequently. Towards this, it has been decided to sunset some of the clauses in the section such as clause (vii) which deals with the precise nature of the gifts and who can give them, and clause (vii a) which delineates the rules for companies receiving such gifts.
The amendments made to Section 56 of the Income Tax Act will come into force from the next financial year.