The Income Tax Act 1961

Refresher on Relatives------

Relatives
Use of relative in the Income Tax Act, 1961 is given as under:
S. No Section Description

1. 2.

S. 13(2) Proviso to S. 17(2)(iii)

Application of income / assets of charitable trust for the benefit of relatives of the trustee, founder, manager etc. Issue of shares to relatives of the promoters under ESOP Scheme.

3. 4. 5.

40A(2)(a) * S. 56(2) S. 64*

Disallowance of payments made towards expenses to relatives of the assessee. Charging of amount received as gift as Income from Other sources. Clubbing of income in the case of spouse, daughter-in-law, minors out of assets transferred without consideration.

6. 7.

S. 79* S 80 DD

Disallowance of set-off of loss carried forward in the case of transfer of shares of a closely held company. Deduction in respect of medical treatment of a dependent who is a person with disability.

8.

S. 80 DDB

Deduction in respect of medical treatment of specified ailments of a dependent who is a person with disability.

9.

S. 92A*

Associated Enterprises under Transfer Pricing Regulations.

* These sections are governed by the definition under section 2(41). The remaining sections carry their own definition

Refresher on Relatives------

Relatives: Definition under section 2(41) of the Income Tax Act, 1961.
Section Definition

S. 2(41)

relative, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.

Analysis: of that individual

The definition defines relationship to be seen from the perspective of an individual, hence: It covers both, a male and female. In the case of a married woman, her father, mother, brother and sister will be considered as relative.

Analysis: lineal ascendant or descendent

Lineal means in a straight unbroken line of descent from parent to child hence: Horizontal relationship viz. lineal descendant of brother and sister are not covered. Lineal ascendant or descendant of the spouses brother and sister are also not covered. Daughter-in-law is not regarded as relative as per the definition.

Section 2(15B) extends the definition of child to stepchild and adopted child as well. It does not include illegitimate child.

Refresher on Relatives------

Relatives: Comparative between definitions as per explanation I to S. 13 and S. 56 (2)(v).

At a first glance both the definition look similar, however, there is a difference. This will be clear from the following comparative table:

Explanation I to S. 13
i. spouse of the individual; ii. brother or sister of the individual; iii. brother or sister of the spouse of the individual;

S. 56(2)(v) i. spouse of the individual ii. brother or sister of the individual iii. brother or sister of the spouse of the individual

iv. any lineal ascendant or descendant of the individual; iv. any lineal ascendant or descendant of the individual v. any lineal ascendant or descendant of the spouse of v. any lineal ascendant or descendant of the spouse of the individual; the individual

vi. spouse of a person referred to in sub-clause (ii) to (v); vi. spouse of a person referred to in clauses (ii) to (vi) vii. any lineal descendant of a brother or sister of either vii. brother or sister of either of the parents of the the individual or of the spouse of the individual Analysis: Any lineal descendant of a brother or sister of either the individual or of the spouse of the individual (i.e. cousins) are not covered under section 56(2)(v)
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Refresher on Relatives------

individual Similarly brother or sisters of either of the parents of the individual (i.e. chacha, bua, mama and mausi etc) are not covered under section 13.

Relatives: Proviso to S. 17(2) (iii) of the Income Tax Act, 1961.

In the case of income from salary, reference to the term relative can be found in the provisions relating to Employees Stock Option Plan (ESOP). Proviso to S. 17(2) (iii) (c) carves out an exception to the provisions relating to perquisites. Section Definition ESOP Scheme Clause (5) An employee who is a promoter or belongs to the promoter group or a director who either by himself or through his relative or through any body corporate, directly or indirectly holds more than 10% of the outstanding equity shares of the company shall not be eligible to participate in such Plan or Scheme. Explanation: an immediate relative of the promoter mean: i. spouse, promoter group ii. parent, iii. iv. brother or sister , child of the person

v. spouse of a person referred to in clauses (ii) to (iv); When compared to S. 2(41), the same relationships are covered, but in a narrow sense. For example, there is a reference to parent but not to lineal ascendant or descendant. It should also be noted that except in the Guidelines there is no reference to the term immediate relative under the Income Tax Act.
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Refresher on Relatives------

Relatives: Definition under section 80DD & 80 DDB of the Income Tax Act, 1961.
Section 80 DD Definition It refers to deduction for the assessee having incurred for the medical treatment and rehabilitation of a dependent with disability 80DDB It refers to deduction for expenditure actually incurred for the medical treatment of such diseases or ailments specified in Rule 11DD for self or dependant relative. Explanation to S. 80DD defines dependent as: i. ii. iii. iv. spouse, children, parents, brothers and sisters of the assessee.

The term relative has not been used in these sections.

Refresher on Relatives------

Relatives: Meaning not defined hence definition under section 2(41) of the Act applicable.
Section 40A(2)(a) The section provides for disallowance of expenses incurred if the payment made for such expenditure is excessive or unreasonable and has been made to persons who are relatives of the assessee. S. 64 The section makes provision with certain identified relatives viz. spouse, daughter-in-law, and minor children. Reference to relative is for the purpose of computing substantial interest in a concern only. S. 79 The section provides for disallowance of set-off of losses in the case of transfer of not less than 51% shares of a company. An exception to the rule has been provided in the case of transfer of shares by way of gift to any relative of the shareholder. Once again, the term relative has not been defined. S. 92A Chapter X contains provisions relating to transfer pricing. For the said chapter, thirteen criteria have been laid down for determining relationship of associated enterprises. Sub-clause (k) defines control of an enterprise by Hindu Undivided Family or relative of a member of such HUF, there is no reference to the term relative in it.

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Relatives: The Companies Act, 1956: Section 6

A person shall be deemed to be a relative of another, if, and only if, (a) The are members of a Hindu undivided family; or (b) They are husband and wife or (c) The one is related to the other in the manner indicated in Schedule IA.]

As per Schedule IA [See section 6 (c)] the following relations have been given: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Father. Mother (including step-mother) Son (including step-son). Sons wife. Daughter (including step-daughter). Fathers father. Fathers mother Mothers mother. Mothers father. Sons son. Sons sons wife.
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i. ii. iii. iv. v. vi. vii. viii. ix. x. xi.

Sons daughter. Sons daughters husband. Daughters husband. Daughters son. Daughters sons wife. Daughters daughter. Daughters daughters husband. Brother (including step-brother). Brothers wife. Sister (including step-sister) Sisters husband
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Related Party:
AS 18 - Related Party Disclosures As per the accounting standard the term relative in relation to an individual, shall mean i. ii. iii. iv. v. vi. the spouse, son, daughter, brother, sister, father and mother;

who may be expected to influence, or be influenced by, that individual in his/her dealings with the reporting enterprise.

Refresher on Relatives------

Direct Tax Code

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Refresher on Relatives------

Relatives: Section (214)

Relative, in relation to an individual, means a) spouse of the individual; b) brother or sister of the individual; c) brother or sister of the spouse of the individual; d) brother or sister of either of the parents of the individual; e) any lineal ascendant or descendant of the individual; f) any lineal ascendant or descendant of the spouse of the individual; g) spouse of the persons referred to in sub-clauses (b) to (f); or h) any lineal descendant of a brother or sister of either the individual or of the spouse of the individual;

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Relatives: Chart showing relatives

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Relatives: A comparative
S.No Relation Income Tax Act, 1961. S 2(41) S 56(2) (v) S 6 Companies Act,1956 AS 18 Related Party Disclosure

1. 2. 3. 4. 5. 6. 7. 8. 9.

Spouse Father Mother Son Sons wife (Daughter-in-law) Sons son (Grand son) Sons sons wife (Grand daughter-in-law) Sons daughter (Grand daughter) Sons daughters husband (Grand son-in-law)

Y Y Y Y N Y N Y N Y N Y N Y N

Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y

Y Y Y Y Y Y Y Y Y N N Y Y Y Y

Y Y Y Y N N N N N N N Y N N N

10. Great grand son 11. Great grand sons wife 12. Daughter 13. Daughters husband (son-in-law) 14. Daughters son (Grand son) 15. Daughters sons wife (Grand daughter-in-law)
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Refresher on Relatives------

Relatives: A comparative
S. No Relation Income Tax Act, 1961. S 2(41) S 56(2) (v) S 6 Companies Act,1956 AS 18 Related Party Disclosure

16. Daughters daughter. (Grand daughter) 17. Daughters daughters husband (Grand son-in-law) 18. Grand father 19. Grand mother 20. Great grand father

Y N Y Y Y Y Y Y N N N N N N N

Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y

Y Y Y Y N N Y Y Y N N N N N N

N N N N N N N Y N N N N N N N

21. Great grand mother 22. Mothers father / mother (Maternal Grandparents) 23. Brother / Sister 24. Spouse of brother / sister (Brother / sister- in-law) 25. Spouses father / mother (Father / mother-in-law) 26. Spouses brother / sister (Brother / sister- in-law) 27. Spouse of spouses brother/sister 28. Mothers brother/sister and their spouse 29. Fathers brother/sister and their spouse 30. Grand father/mother of spouse
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Refresher on Relatives------

Relatives: Main points

Daughter-in-law and sister-in-law have not been recognised as relatives under Section 2(41). Lineal ascendants or descendants referred in clause (v) and (vi) of section 56(2)(v) cover only the lineal ascendants or descendants of the individual or spouse of such individual, so that any assessee, who receives a gift from his nephew or niece will be taxed, since such nephew or niece is not the lineal descendant of himself or his wife. No limitation as to the degree of relationship is prescribed so that a lineal ascendant or descendant of not only first and second degree but also third and fourth degree and so on will also qualify as a relative.

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Refresher on Relatives------