Do You Have To Pay Income Tax On Gifts?
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Festive season is here, big and important festivals like Diwali & Christmas are waiting in line. Along with these festivals the wedding season is also going to start soon.
While preparing for upcoming celebrations you must be planning for what kind of gifts you should give, or hoping for some particular gifts to come your way. How do you know which gifts are tax-free & which ones aren’t? Let’s find out.
Starting with tax-exempt gifts, i.e. gifts you can enjoy without wondering about what the taxman is going to say:
- Gifts you receive on the occasion of your marriage
Any and all gifts (cash or kind) received by groom and bride on their wedding are tax free. In other words, no matter what your gift is or who gave it you, if you received the said gift on your wedding, it is completely exempt from tax.
But keep in mind gifts are only tax-exempt if received by the marrying couple, any gifts given to parents or siblings of either bride or groom is liable for tax. Also, only wedding gifts are tax-free, gifts received on a wedding anniversary are not.
- Gifts you receive from your relatives
If you receive any gifts from your relatives (cash or kind) the said gift is completely tax free for you. This means that no matter what the price of a gift is, if you receive the gift from your relatives (including NRI relatives), you don’t have to worry about any tax implications. But before you get all excited it’s important to check who all qualify as relatives as per IT department:
(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 descendent of the individual;
(f) Any lineal ascendant or descendent of the spouse of the individual;
(g) Spouse of the persons referred to in (b) to (f).Also, keep in mind that while a gift received by any of the above mentioned person(s) is tax free, any income earned later on by using that gift (like house rent or interest income etc) is not tax exempt.
- Any amount received by will/by way of inheritance
If you receive any sort of gift (cash or kind) by being a legal heir or nominee under will, or if you simply inherit it, the said gift will be completely tax free. Same holds true if you receive anything in contemplation of death (from someone who is ill and is expected to die shortly of his illness).
- Gifts you receive from local authorities, registered institutions etc.
If you receive any gifts from local authorities, fund, foundations, registered trust or institutions, university or other educational institution, hospitals or other medical institutions, you are not liable to pay any tax on such gifts.
The above mentioned scenarios are the only occasions where the gift received is completely tax free in hands of the recipient. But what if you received gifts from your friends, or colleague, or from relatives other than those covered above? Well in that case, whether you are liable to pay tax or not on such gifts will depend on the amount and the kind of gifts received.
Government of India has divided gifts for tax purposes in three different categories:
- Monetary Gifts
- Immovable Property as Gifts
- Movable Property as Gifts
Let’s take each one of these categories and understand what the taxman says:
- Monetary Gifts
Any monetary gifts you receive in form of either cash, cheque, draft etc. by person(s) other than your relative, will be tax free only if the total amount of such gift doesn’t increase the prescribed limit of ₹50,000 in a year. If the total amount is more than ₹50,000, then the entire amount will be taxable, and not just the increased amount.
Lets understand this with help of an example: Say during a year you receive ₹70,000 from your father. In the same year you also receive ₹30,000 from a close friend of yours. In this case you are not liable to pay any tax on ₹1Lakh you received during the year. This is because the ₹70,000 amount is completely tax free (gift received from relative), and the ₹30,000 you got from your friend is below the limit of ₹50,000, therefore tax free.Now, next year you receive ₹30,000 and ₹20,000 from two different friends & another friend of yours gave you an additional ₹10,000. You are liable to pay tax on the entire amount of ₹60,000 and not just the additional amount of ₹10,000.
This ₹60,000 will come under the heading of income from other sources and this amount will be clubbed with your other income and will be taxed as per your tax slab.
Note : Currently, the government has put a limit on single cash transactions of more than ₹200,000. So if you receive more than ₹200,000 from your relatives you will face a penalty. Therefore, try and avoid any high amount monetary gifts in cash form, opt for bank transfers or cheques.
- Gifts in form of Immovable Property
Indian Government has specified immovable property as being land, or building or both. You don’t have to pay any tax if you receive immovable property as gift from your relatives, or on occasion of your wedding, or in way of any of the exempt rules mentioned above. But if you received it as gift in some other means, you are liable to pay tax if the stamp duty value of such property is more than ₹50,000. If the stamp duty value is more than ₹50,000 say ₹90,000 the entire ₹90,000 will be charged to tax.
But unlike monetary gifts each immovable property is considered in isolation. This means that, if you receive 3 different immovable properties as gifts, but neither of them had a stamp duty value of more than ₹50,000, you are not liable to pay any tax, irrespective of the fact that their total value might be more than ₹50,000.
- Gifts in form of Movable Property
Government of India has issued a prescribed list of what comes under movable property for tax purposes. This includes shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion (like gold or silver coins & bars).
The important point to note here is that, anything not covered in this movable property list will be tax free if received as gifts. For example: if you receive any vehicle, laptop orhousehold items as gifts, they will be tax free because they don’t fall under the above definition.
But if you receive diamond jewellery from your fiancé and the fair market value of it is more than ₹50,000 say ₹80,000, the entire amount of ₹80,000 will be charged to tax, because a fiancé is not considered as a relative.
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