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Gifts and Tax

 

IT IS human nature to be happy when one gets a gift, whether on certain occasions or otherwise.


However, one also has to accept that there are associated income tax implications under the IncomeTax Act, 1961 (the Act) on certain gifts.

It may be recalled that earlier, gifts were taxable in the hands of the donor under the Gift-Tax Act, 1958, which continued for around 40 years until it was repealed in 1998.

Subsequently, in 2004, taxability of gifts was reintroduced as part of the Act and were made taxable in the hands of the recipient, and effective from September 2009, the scope of taxability provisions in connection with gifts has been widened.


Taxability of gifts: As per the provisions of Section 56(2)(vii) of the Act, specified gifts received by an individual or Hindu Undivided Family (HUF) are taxable under the head "income from other sources" in the hands of the recipient, subject to the monetary limits and other conditions specified therein.

As has been specified in the Act, gifts would mean any sum of money; immovable property, such as land or building or both; shares and securities; jewellery; archaeological collections; drawings; paintings; sculptures; any work of art; or bullion.

In case of any sum of money received, the aggregate value of which is in excess of Rs 50,000, the whole amount is taxable in the hands of the recipient.

In a case, where any immovable property is received as gift without consideration, the stamp duty value of which exceeds Rs 50,000, the stamp duty value of such property would be taxable in the hands of the recipient.

Where a property, other than immovable property is received with out any consideration and the aggregate fair market value (FMV) of which is in excess of Rs 50,000, the entire FMV would be con sidered as income of the recipient in accordance with regulations. For ex ample, in case you receive any jewellery, shares or any other movable property covered within the provisions of the law, then the FMV of such gifts would be computed in accordance with the prescribed regulations and accordingly taxed.

Exceptions: The income tax authorities have also provided a breather from tax by providing for cer tain exceptions in relation to receipt of gifts. Some of the exceptions have been specified below: Gift received from a rel ative would not be consid ered as taxable in the hands of the recipient, ir respective of the value of the gift. The act has speci fied that relatives would include the spouse of the individual; brother or sis ter of the individual; brother or sister of the spouse; brother or sister of either of the parents of the individual; any lineal ascendant or descendant of the individual; and any lineal ascendant or descendant of the spouse.

Gifts received on the occasion of marriage of an individual, whether received from relatives or non-relatives, irrespective of the monetary limit.

Gifts received under a will or by way of inheritance.

Gifts received in contemplation of the death of the payer or donor.

Gifts given by the employers to their employees, if the value of the gift is less than Rs 5,000 in aggregate during the tax year.

Therefore, gifts received under any of the above situations will be considered exempt from tax in the hands of the recipient.

It can, therefore, be seen that the relevant awareness and understanding of tax provisions relating to gifts would be helpful in order to understand its implications and to be in compliance with tax laws.
 

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