Question

1.3 REQUIRED Discuss in which year of assessment Richie Rich’s dividend ‘accrues’ to him. INFORMATION: Richie Rick holds 1 000 ordinary shares in Steinhoff (Pty) Limited, a resident company. At its annual general meeting held on 23 December 2017 it announced that a final dividend of R20 a share would be payable to all shareholders registered with it at the close of business on 20 February 2018. Payment of the dividend to be effected on 2 April 2018. 1.4 REQUIRED Discuss whether the amounts received by Sam Smith are considered gross income. INFORMATION Sam Smith was employed for a number of years as the late Elon Tusk’s chauffeur. On the death of Elon Tusk, Sam Smith received as a bequest, • the car he had driven (valued at R142 000), and • cash of R150 000.

Answer 1

1.3 Each country in the world has their own taxation system

Here we were taking about taxation system of dividend in India

As per section 10(34) of Income Tax Act, any income received by an individual/HUF as dividend from an Indian company is exempt from tax as the company declaring such dividend has already deducted dividend distribution tax before paying the dividend.

However, under Section 115BBDA (as introduced in the Finance Act, 2016), if aggregate dividend received by an individual/HUF from companies exceeds Rs. 10,00,000, it is liable to pay tax at the rate of 10% on dividend income received in excess of Rs. 10 lakh. Section 115BBDA applies only on dividend income received from domestic companies under Section 10(34) and excludes dividend income received from mutual funds under Section 10(35).

However Dividends from mutual funds are tax-free for investors but they are required to pay a dividend distribution tax of 25% (29.12% with surcharge and cess) for debt funds, and 10% (11.64% with surcharge and cess) for equity funds.

1.4 Here we were again taking about taxation system of India

In the event of death of an individual, properties belonging to the deceased would pass on to his legal heirs/friends/relative etc. This event, no doubt, is a transfer of an account without any consideration in return. Hence it could qualify as a gift for the purpose of income tax. However, provisions of Income tax Act, 1961, clearly exclude a case of transfer under a will or inheritance from the purview of gift tax. Accordingly, law does not provide for taxation of property received by way of inheritance.

Many a time, the inherited property is a source of income – rent, interest etc. – to the owner. When the heir becomes the owner, the income goes to him. So, the new owner must declare this income and pay taxes accordingly.

Eg. Mr.Ram is the owner of a commercial complex that is given on rent. He had incurred a cost of Rs. 50 lakhs for the construction of the complex. He earns a monthly income of Rs.60000 from the complex as rent. Upon his death, the property is transferred from Ram to his legal heir (son) Shyam. Here, as the transfer is of the nature of transfer by will, it cannot be considered taxable. However the rent of Rs. 60,000 will be taxable in the hands of Shyam, as the income accrues to him.

Although no tax is levied on receiving the inherited assets in India, but income tax would be levied on the receipt of any income arising from such inherited assets