Gift you must, but know the tax implications too

It is customary to receive and give gifts in India. Also on many occasions/events, gifts are commonly exchanged among friends and relatives. It is important to note that such gifts received could have tax implications in the hands of the recipient; therefore, one needs to exercise caution so that he is not caught unawares.

Sum of money

As per the provisions of the I-T Act, 1961 (the Act), any sum of money received by an individual or a Hindu undivided family in a particular financial year, without consideration, the aggregate value of which exceeds Rs 50,000 is taxable.

Immovable Property

Effective October 1, 2009, the scope of the taxability provisions in respect of the gifts has been enlarged to include immovable property, including land or building or both. If any immovable property is received without consideration, whose stamp duty value exceeds Rs 50,000, the stamp duty value of such property would be taxable.

If any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs 50,000, the stamp duty value of such property would be taxable.

Other gifts

Similar to the immovable property, certain other gifts received w.e.f October 1, 2009, has also been brought under the tax net. These include shares and securities, jewellery, archeological collections, drawings, paintings and sculptures as specified under the Act. In these cases, if the aggregate fair market value of the benefit received by way of a gift exceeds Rs 50,000, the same would be taxable.

Exceptions to the rule

It is pertinent to note that the tax law does provide for certain exceptions which are worth noting as these provide substantial relief to individuals/HUF under normal day-to-day circumstances. These include:

Gifts from relatives

Gifts received from any relative, as defined under the Act, is not taxable. Relatives include spouse of the individual; brother or sister of the individual; brother or sister of the spouse of the individual; brother or sister of either of the parents of the individual; any lineal ascendant or descendant of the individual; any lineal ascendant or descendant of the spouse of the individual; and the spouse of the person referred to as aforesaid.

Gifts received on marriage

Any gift received by an individual on the occasion of his/her marriage would also not be taxable. It is customary to receive gifts of money and kind on the occasion of marriage. Therefore, this is an important exception to the general rule.

Gift received under a will, etc

Any gift received under a will or by way of inheritance, or in contemplation of death of the payer is also not taxable.

Certain other events

In case an individual receives any gift from any local authority as specified under the Act, the same would not be taxable. Similarly, any gift received from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust/institution, as specified under the Act, would not be taxable.

Documentary Evidence

Gifts received are quite prone to litigation. Hence, it is prudent to maintain documentary evidence in respect of the gifts received, to avoid any dispute with tax authorities at a later stage. This is particularly relevant in case the gift amount is substantial and also where it is received from relatives. In case of gift of money received from a relative, it is advisable to have gift deed/letter of understanding exchanged and kept in records by the recipient of the gift for future reference.

Thus, enjoy your gifts, with a bit of caution.

SOURCE: THE ECONOMIC TIMES