Does a nominee who is a friend liable to pay income tax if he transfers the amount to donation

In the scenario you've described, there are some important tax implications to consider. When a nominee, who is not a relative, receives assets such as proceeds from fixed deposits or equity shares, the amount is generally considered part of their income for tax purposes.

1. Tax Implications for the Nominee: When your friend receives the proceeds from your fixed deposits and equity shares, these amounts would typically be considered as income in his hands. As such, they would be taxable according to the prevailing income tax laws unless specific exemptions apply.

2. Documentation for Donation Intent: If the intent is for these funds to be donated, it's crucial to establish this intent clearly and legally. However, simply having a mandate that your friend should donate the funds might not be sufficient to exempt him from tax on these amounts. The income tax authority could indeed question the arrangement as it may appear as a method to bypass tax liabilities.

3. Suggested Approach: To ensure that the proceeds are used for charitable purposes without tax implications for your friend, consider a more direct approach. Instead of nominating your friend with the instruction to donate, you could directly nominate a charitable organization or set up a trust with specific instructions for the funds to be donated upon your demise. This way, the funds go directly to the charitable cause without creating a tax burden for your friend.

4. Legal Documentation: If you still prefer to nominate your friend, it would be wise to draft a trust deed that specifies the donation intent. This document should be crafted carefully to minimize the possibility of the tax authorities considering the funds as your friend’s personal income.

In summary, the direct nomination of a charity or the creation of a trust for charitable purposes would likely be a more effective and safer approach to achieve your objective without imposing tax liabilities on your friend. It would also provide clearer documentation and intent to the tax authorities.

3) No income tax implications on your friend 

2) Trustees on behalf of organisation

3) There is a proper checklist which bank will let you know

4) Balance amount will be transferred when nominee rights will be enforced

5) aroravivek1982@gmail

6) Before transfer of funds to the nominee, bank will ask for legal heir certificate and NOC from the legal heirs

1. Nominating a Charity Organization as a Beneficiary

For nominating a non-human entity like a charity organization (Gurudwara in your case) to receive the proceeds from your Fixed Deposits, you'll typically need to designate an authorized representative of the organization. This could be:

• The Chairperson or President of the organization.
• The Treasurer or any other official responsible for financial matters.
• An officially designated Account Manager or similar role.

It’s best to contact the organization directly to confirm who can legally act as the recipient for such nominations and ask for their official consent and details in writing.

2. Communicating Your Nomination to the Bank/Charity

You should draft a formal letter to both the bank where your FDs are held and the charity organization, stating your intention to nominate the organization as the beneficiary of your FDs. The letter should include:

• Your account details.
• The organization's legal name and the designated representative’s contact information.
• Your explicit intention for the FD proceeds to be transferred to the organization upon your demise.

This letter should be signed by you and ideally notarized or witnessed to avoid any ambiguity.

3. Listing Fixed Deposits that May Deplete

If you are using the FDs for sustenance and their amounts might change, you can:

• List them as they are at the time of the nomination.
• Update this list periodically, or
• Specify a percentage of the remaining amounts in each FD to be given to the charity at the time of your demise.

This way, whatever the balance at the time of your passing, a predetermined percentage goes to the designated beneficiary.

4. Avoiding a Will

Avoiding a will to save on probate and other costs is understandable. In this case:

• Make sure all your nominations are updated and in line with your current wishes.
• Ensure that all necessary documentation is filled out correctly and recognized by the bank and other institutions where your assets are held.

This direct nomination approach typically bypasses the need for probate but check with a legal advisor to ensure that this approach is executed as per the prevailing legal norms in your area.

To avoid an NOC from heirs and ensure your assets go directly to the charity, here are effective options:

1. Set Up a Trust: Create a trust during your lifetime to hold the FDs and designate the charity as the beneficiary. This bypasses heirs and probate entirely.

2. Direct Nomination to Charity: Nominate an authorized representative from the charity with the bank. Submit a nomination form with their details to transfer the FD proceeds directly.

3. Donation or Gift Deed: Draft a deed specifying your intent to donate proceeds, with your friend as a temporary custodian, ensuring funds go to the charity.

4. Separate FD for Charity: Open a specific FD for donation, nominating the charity’s representative as beneficiary to keep it outside your personal assets.