If you receive a gift then please be a little careful specially in view of the new amendment introduced by the Finance (No. 2) Act, 2004 whereby a gift received on and after 1-9-2004 from a non-relative would be treated as income and taxed accordingly. However, these provisions would not apply in respect of gifts, etc. received upto Rs. 25,000 till the A.Y. 2006-2007 and upto Rs.50,000 afterwards in a year from non-relatives. However, gifts received on the occasion of marriage would be exempted without any upper limit. The gift from relatives can be received of any quantum. However, these provisions apply only with reference to gift by cash, cheque or any other mode of payment like gift cheques and travellers cheques. Hence, gift by way of jewellery, property, shares, paintings, etc. even from non-relatives can be received without tax till the A.Y. 2009-2010. From the A.Y. 2010- 2011, more specifically on or after 1-10-2009 even gifts in kind (above the exempted limit) are taxable as income.
However, in order to avoid hardships in genuine cases; it is also provided to exclude certain sums from the scope of the new definition of income under Section 2(24). The sums which shall not be included in the income are:
the sum received by, or credited in the account of
any individual from a relative out of natural love and affection, or
any individual or Hindu undivided family under a Will or by way of inheritance, or
any employee or the dependent of the deceased employee from an employer, by way of bonus, gratuity or pension or insurance or any such other sum solely in recognition of the services rendered by the employee, or
any sum received in contemplation of death of an individual or karta or member of a Hindu undivided family, or
any income referred to in Section 10 of the Income Tax Act or any other income which is exempt or not included in the total income under the Act or
any sum received on account of transfers referred to in Section 47 under Income Tax Act.
The expression “relative” for the purpose of this provision would be:
- 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
- spouse of a person referred to in items (ii) to (vi) mentioned above.
On and from F.Y. 2006-07 relevant to the A.Y. 2007-08 the aggregate value upto ` 50,000 will be exempted from the purview of being taxed as Income from other sources. Moreover, the sum of money received from local authority, or any fund or foundation or university or hospital or other medical institution as mentioned in Section 10(23 C) or the trust or institution registered under Section 12AA would be exempted without any upper limit.
This means that if any gift is received, say from a Charity Trust by a meritorious student for higher studies, say of ` 4 lakh, then such amount would be exempted from being taxed as income as per Section 56 . Similarly, if any help is received from some Trust, etc. for medical treatment, say of 2 lakh then also it would be tax exempt. However, this benefit would not be available on grant for education or medical help if received from an institution from abroad because the same is not covered in the exemption clause as the exemption only is for Trusts or Institutions mentioned in Section 10 (23C) or Section I2AA of the Income Tax Act, 1961. From 1-7-2010 even the gift of “Bullion” from non-relatives would be taxed as income.
The above mentioned provisions would also be applicable to gifts made by an NRI to a non-relative Indian.