In a notable decision, the Mumbai Income Tax Appellate Tribunal (ITAT) ruled that a Rs 3-crore gift from a Hong Kong-based hedge fund operator to his mother in Mumbai is legal and exempt from tax. The gift was challenged by tax authorities who doubted its genuineness. However, the ITAT upheld that gifts from close relatives are exempt from taxation under Section 56 of the Income Tax Act, provided proper documentation exists.

Key Insights

1. Gifting from NRIs: Cross-border gifts can be tax-exempt if they come from close relatives, including family members.
2. Documentation is Crucial: Proper records, such as gift deeds and bank statements, help in validating the transaction.
3. Legal Clarity: The ruling clears up confusion on taxation in familial financial transfers, especially involving NRIs.
4. Tax Compliance: It highlights the importance of transparency to avoid disputes with tax authorities.

ITAT’s Decision:

The Tribunal emphasized that close relatives, including parents, are not subject to gift tax. This ruling underscores the importance of maintaining clear records like gift deeds, bank statements, and proof of financial capacity to avoid disputes. It provides relief to taxpayers receiving genuine gifts from family members, reaffirming that intent and proper compliance can overcome scrutiny.

You can refer to the source TOI article dated 10-12-2024 for a detailed update.