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Gift-Taxable under Income Tax (Cash / Non-Cash Gift)- An insight to Tax Planning your Gifts

 

Although the fact remains that Gift Tax Law has been abolished and erstwhile law was of taxing the person who has made gifts. The person making the gift has not to pay any Income Tax at all irrespective of the quantum of the gift. It may also be noted that if the gift is made to a relative or if the gift is made to a non-relative or even when the gift is made to a charitable or a religious institution, in all such situations the donor under the present provisions of the Income Tax Law is not required to make payment of any Income Tax in respect of the gifts given by him. It is the recipient of the gifts who alone is called upon to make payment of the tax in respect of the gifts received by him.

The recipient of the gifts whether in cash or in kind is not subjected to any type of tax especially when such gifts are received from blood relations. Hence, if you are going to receive any quantum whether of movable assets or of immovable assets from your relatives, then you need not worry about any tax payment in respect of the gift amount received by you. However, if you receive gift from non-relatives i.e. if the gift amount is received by you from friends etc., then as per section 56 of the Income Tax Act, 1961 in case the gifts are in excess of Rs. 50,000 during one financial year, then you are called upon to make payment of Income Tax on such amount which is in excess of Rs. 50,000. For example, if Basavaraj were to receive Rs. 1,20,000 as gift from various friends on the occasion of his 50th. Birthday, then the sum of Rs. 50,000 will be exempted but the balance Rs. 70,000 will be added to the income of Basavaraj and thus Basavaraj will be subjected to Income Tax payment on this amount which will be added to his other income and then the applicable tax will become due and payable by Basavaraj. If Basavaraj were to also receive let us say Rs. 5 lakh, from his father on the occasion of his 50th. Birthday, then no Income Tax will be required to be paid by Basavaraj on this amount of Rs. 5 lakh because this amount has been received from his relative.

Although by now we have come to know that gift received from relatives without any upper limit is not subjected to tax but still we come across some tax problems arising to the tax payers specially if the recipient of the gift is a lady and she were to receive the gift amount from her husband or father in law or mother in law. As per section 56 of the Income Tax Act, 1961, if the married lady were to receive the gift amount from her husband or father in law or from her mother in law, then also no tax will be payable by her on the gift amount received by her because such gift has been received from a relative within the definition of the Income Tax Law. The entire amount received by her will not be subjected to income-tax at all because the amount has been received as gift from relatives.

However, in this case yet another problem will arise in respect of the gifted amount so received especially if we take into consideration the provisions of the Income Tax Law contained in section 64 of the Income Tax Act, 1961. As per section 56 there will be no tax liability on the gifted amount received by way of gift from relatives whether husband or the father in law or the mother in law. But simultaneously, as per the provisions contained in section 64 of the Income TaxAct, 1961, in case any amount is received by a married lady from her husband or from her father-in-law or from her mother-in-law, then the income from such gifted amount will be treated as income of the donor. Thus, this provision of the Income Tax Law specifically puts a condition of taxing the income received by the married lady from these gifts to be added in the income of the husband or in the income of the mother- in-law or in the income of the father-in-law. For example, if the lady had received let us say Rs. 10 lakh, from her husband and she were to invest the money in bank Fixed Deposit and she were to earn Rs. 90,000/- income from such bank Fixed Deposit in her name but under the Income Tax Law this amount of Rs. 90,000 will be added with the income of the husband as per in section 64 of the Income Tax Act, 1961. Likewise, whatever gift she has received from her father-in-law and her mother-in-law, if she were also to invest the same amount in the bank Fixed Deposit, then the interest earned by her from this bank Fixed Deposit will also be treated as income of the father-in-law or the mother-in-law.

Hence, it is recommended that do always avoid receiving any gift from your husband or father-in-law or mother-in-law. However, the better course of action would be not to receive the gift from either husband or the father-in-law or the mother-in-law but in the alternative to receive loan from husband or loan from father-in-law or loan from mother-in-law and at the reasonable rate of interest in respect of the loan which is taken by a married lady, then the question of any clubbing of income will not arise because it is a loan amount and not a gift amount.

Further, the law also provides for certain exceptions. The moneylproperty received in the circumstances mentioned below is not taxed:

  • From specified relative as given below..
  • On the occasion of the marriage of the individual. ‘ Under a Will or by way of inheritance &
  • In contemplation of death of the payer.
  • As per the explanation given under the above section

‘relative’ means:
1) Spouse of the individual.
2) Brother or sister of the individual.
3) Brother or sister of the spouse of the individual.
4) Brother or Sister of either of the Parents
5) Any lineal ascendant or descendant of the individual.
6) Any lineal ascendant or descendant of the spouse of the individual and
7) Spouse of the person referred to in clauses 2 to 6. Get affidavit while taking gift of over Rs. 50,000 from relatives.

From now on, when you get gift-in-kind valued at more than Rs. 50,000 from your parents or other relatives, make sure you have a sworn affidavit declaring the donor as your kin.

The recipient has to get an affidavit affirming the donor to be his mother, father, brother, sister or any other relative so that at the time of claiming the exemption under the new arrangement, the Income Tax assessment officer can have an on-spot verification.

An individual can preferably get one affidavit listing all such gifts in the entire assessment year from different or the same relative. The individual will hence reduce the trouble of preparing an affidavit each time he receives a gift.

During the assessment of the I-T returns, the affidavit will save you from the hassles of proving the gift both movable and immovable, being received or inherited from any relative residing in any part of the world. It will also establish the donee’s relationship with the donor.

Assesses will have to file Income Tax dues on the value of the gift and disclose the taxable value of such property in the return of income.

On wedding day, gift received from anyone (relatives or not) would not fall under “Gift” and not taxable under income tax. Money received under “WILL”, by way of inheritance, and benefits from employer for the service to the employee or to the dependent in his absence also will not be treated as Gift taxable under Income Tax.

Tax Planning Hints on Gift Tax :

No Tax benefits arise in gifting to your Spouse or minor children or daughter-in-law as income will be clubbed in the hands of the donor.

On gifting to others, being relatives as defined under the IT. Act, the income arising therefrom shall not be clubbed under your hands.

You may accept cross gifts upto Rs. 50,000 in favour of Yourselves, your Spouse & Minor Children from Non-relatives.

Premarital Transfers: Gift to the fiancee before the marriage will not attract the clubbing provisions. The relationship of husband and wife must subsist not only at the time of the accrual of income from the gifted asset but also when the transfer of the assets is made. Similarly, gift may be made by father-in-law/mother-in-law to the prospective daughter-in-law.
 
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