Taxing the men in blue

What the rain of gifts means to the captain and his boys


Manoj Kumar | April 5, 2011

The Indian captain may be receiving a gleaming red Ferrari 599. But as he plans to scorch the streets of Ranchi, his financial planners would be well advised to apportion 30 per cent of the estimated $600,000 price tag as income tax. That’s a cool Rs 1-crore by way of tax that MSD will have to pay under Section 56 of the Income Tax Act (ITA) for the custom-built gift, as income from other sources.

Back-of-the-envelope calculations on other gifts that Dhoni will get includes 30 per cent of the bonus of Rs 1 crore that BCCI plans to give him, a 30 per cent of the market value of housing land waiting to be gifted to him in Jharkhand, Uttarkhand and Karnataka. The land for his cricket academy in Uttarakhand may fall under more benign tax provisions available for trusts.

Dhoni may escape paying income tax on gifts in cash and kind from central and state governments provided the Central Board of Direct Taxes (CBDT) issues a notification exempting them and justifying them as an act of public interest. Also, gifts from the Indian Railways and other state agencies may escape the taxman.

Here’s a quick primer on the exemptions:

Section 10 (17) A of the Income Tax Act, 1961 provides for any income for any payment made, whether in cash or in kind or in pursuance of any award instituted in the public interest by the Central government or any state government or instituted by any other body or approved by the central government in this behalf as also any reward by the central government or any state government for such purposes as may be approved by the central government in this behalf in the public interest to be excluded from total income this fiscal.

The central government has notified various awards under section 10 (17) A (i) vide over16 different notifications and has notified only one reward under section 10 (17) A (ii) as being eligible to be not included in total income.

The notification of such awards and rewards will have to be done on the case-to-case basis and specific in nature specifying each particular award and reward, in fact, each house/reward, as applicable.

Pursuant to historic victory of India at the world cup, the central or state government, various bodies, public institutions has announced similar awards/rewards to our players and other members forming part of Indian squad.

These include numerous cash rewards, plots of land, awards of acknowledgment and in one case a high-end Audi car.

It is interesting to note that only awards instituted in public interest are eligible to be excluded from the total income, which obviously does not include ad hoc one-time rewards.

That leaves us with almost all these cash rewards and other rewards in kind to be at the mercy of similar notification under section 17 A (ii) which only provides for rewards for central or state government and does not envisage any one time rewards by any entity other than the central or state government (read BCCI) to be eligible to give such a reward excludable from total income by way of a notification under section 17 A (ii).

Therefore, before anything else, the central government would require to notify all the rewards given by itself or any state government by way of appropriate notification under section 17 A (ii) in order to bring it at par with similar tax exemption already given in relation to the income from world cup to the organizer and secondly all other rewards given by any third entities including Yuvaraj Singh’s Audi would form a part of the income of the concerned rewardees. Unless, amidst the huge cricketing euphoria, the opposition and the treasury benches agree to amend section 17 A (ii) itself. Call it diplomacy in the tax arena!



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