If my friend transfers (using Third Party Transfer or NEFT) some money to my savings account, does that amount count as my transfer income and do I have to pay tax on it?
The purpose of the transfer determines the taxability. If this is happening to frequent, it is advisable to keep proper records of the transaction so that if there is an enquiry from Tax authorities you can explain. Unless you explain the why the transfer is being made, I have put out some broad categories.
- Transfering the Money to you as Loan with expectation of repayment in future date. This is not taxable to you. When you transfer back the money to your friend the interest will be taxed to him as income. Proper paperwork required to be maintained with you to answer any queries to Tax Authorities.
- Transfering the Moeny to you as repayment of Loan. I.E. Your friend had borrowed from you and is repaying you. The interest is taxable to you. Proper paperwork required to be maintained with you to answer any queries to Tax Authorities.
- Sharing of Expense. i.e. you have both out of dinner / movie / renting an apartment and he is transfering his share of Expenses. No Tax obligation. Paper work required to justify that it was an shared expense. Receipts etc.
- In absence of any of the above, the transfer will be termed as GIFT from you friend. There is an yearly limit of Rs 50,000/- as Gift from Unrelated persons. Anything above that would have Gift Tax
- As Victor pointed out in comment, if its in return for work, then its definately your income and taxable.
As per Indian tax laws; income, expense, gain and loss constitute the basic pillars of every individual’s economic life. There are very few cases under which this new 'income' is non taxable. Based on the circumstances, you might have to pay capital gains tax.
protected by Chris W. Rea Nov 5 '17 at 22:05
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