Karnataka Chief Minister Siddaramiah may have to shell out heavily by way of Income Tax, for the watch gifted to him by his friend. According to news reports H.D. Kumaraswamy had alleged at an election rally that Mr. Siddaramaiah, who boasts of his socialist credentials was wearing a watch of Rs 50 lakhs.
So, if this watch was a recent gift then Siddaramiah may end-up paying almost Rs 19.25 lakhs as tax without considering Sec 80C and other exemptions, which would be payable by July 31, 2016. We are also assuming that he has zero other income and this is only the cost of the watch which will be added to total income.
One can claim exemption from tax, if it is gifted by a spouse, brother or sister, brother or sister of the spouse and parents or grandparents. Of course, if the gift has been received at the time of marriage it is fully exempt.
Since, none of these apply the watch will attract tax under the present provisions of the Income Tax Act:
How would the watch be taxable?
As per the present provisions any gift above Rs 50,000 in a financial year would be added to the total income and tax computed as per the slab. So, the total cost of the watch would be added to the total income and tax computed accordingly. In this case what would happen is that the Chief minister would fall in the 30 per cent tax bracket and tax computed accordingly.
Now, we are assuming that he has already not paid tax on this and it was received in this financial year. If he has received the watch last year, he should have paid taxes by now. Of course, we do not know what the value of the watch is, but, have taken media reports into consideration for the purpose of calculation.