The Gift Punch

We tell you about rules governing taxation of gifts
Rahul Oberoi/Money Today        Print Edition: December 2014
Rules you must know regarding gift taxation
Photo: Reuters

The year's last quarter is dotted with numerous festivals. It is also the marriage season. Giving/receiving gifts is integral to both. However, most people do not know that some gifts are taxable in the hands of recipients, a fact that may land them into trouble with the tax department. So, to make sure that you stay clear of tax troubles, we give you a low-down on rules that govern gift taxation.

Background

The term 'Gift' was first defined for tax purposes in The Gift Tax Act 1958, which was repealed by the Finance Act 1998. Later, the Finance Act 2004 revived gift tax and put under it in the income tax regime.

Under the Act, gift can be given in the form of cash, immovable property (land/building) and movable property (such as securities, jewellery, painting, sculpture, work of art). Any of these, if received from a close relative, is not taxable. For gifts from others, this is what the tax rules say. Cash: If aggregate value is equal to or less than Rs 50,000, no tax is levied on the recipient (individual/HUF or Hindu undivided family). If the value exceeds Rs 50,000, the whole amount is taxable. The amount is added to 'income from other sources' and, thus, is taxed according to the person's tax slab.

Parizad Sirwalla, partner, direct tax, KPMG, says, "Gifts are taxable in the hands of recipients (individual/HUF) under the head 'income from other sources" Immovable property: Receiving an immovable property as a gift is a complex affair. One key point is that the gift has to be given in writing, signed by the donor, and attested by at least two witnesses.

There are other complexities too. "If the stamp duty value of the property exceeds Rs 50,000, such stamp duty shall be treated as income in the hands of the recipient. However, if the property is transferred for a consideration and the stamp duty value exceeds the consideration by more than Rs 50,000, the difference is treated as income in the hands of the recipient." Movable property: Movable property includes securities, jewellery, archaeological collection, bullion as well as a work of art. If any movable property other than the above mentioned ones are gifted, no tax is payable. Suresh Surana, founder, RSM Astute Consulting Group, says, "If a movable property is received without consideration, tax is levied on its fair market value if it exceeds Rs 50,000. However, if a property is received by payment of less than the fair market value, the difference between the market value and the price paid is taxed under the head 'income from other sources.' But the property's fair market value must be more than Rs 50,000.

Who are Relatives?

The term 'relative' has been defined to mean: i) Spouse; ii) Brother or sister; iii) Brother or sister of the spouse of the individual; iv) Brother or sister of either parent of the individual; v) Any lineal ascendant or descendant of the individual; vi) Any lineal ascendant or descendant of the spouse of the individual; vii) Spouse of the person referred to in (ii) to (vi); and viii) In case of HUF, any member of the family.

Exemptions

Wedding gifts are not taxed, no matter how expensive they are. There are other exemptions too. One such exemption applies to any sum or property received by an individual or HUF from a relative, under a will/inheritance, from a local authority, from a specified registered trust or institution or from a specified fund or foundation or university or medical institution.

Clubbing of Income

Gift from spouse is exempt from gift tax as spouse falls under the definition of "Relative". However, income from such a gift is clubbed with the individual's income and taxed accordingly.

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