Tuesday, 2 September 2014

Tax implications on giving or receiving gifts

Want to gift a property or life time savings to your loved ones? Or have you received a car as a gift on your birthday? Are you worried about the cash gifts received on your wedding? Enjoy giving or receiving gifts guilt-free once you are mindful of the gifting provisions in India.

As per current tax laws, if an individual receives cash or non-cash gifts from persons other than blood relatives* in excess of Rs. 50,000 in a year, the whole of such gift received will be treated as the individual's income and must be included under 'Income from other sources'. If it does not exceed Rs. 50,000, it will not be treated as income.

But not all gifts are taxed. The specific assets for which gift tax is applicable are - cash, immovable property such as land & buildings, and movable property - shares & other securities (debt, derivative F&O), jewellery and bullion, art and antics (paintings, sculptures, etc.).

In the same way, gifts from the following sources are tax exempt irrespective of amount received as Gift:
  • Any blood/close relative*Gifts received on your wedding
  • Gifts received by Inheritance or by Will
  • Gifts received from any local authority (state government and related establishments)
  • From any university, educational institutions, charitable institutions and other institutions referred under section 10 (23).

Note: Movable property will be considered at fair market value.

What You Should Know

Gifts made to spouse, minor children and daughter-in-law for inadequate consideration will be deemed income in the hands of the individual making the gift.

You can gift movable property to your dependent major children (above 18 years age) and the income earned from such gift will be taxed in their hands, thereby lowering your tax liability.

An NRI (non-resident Indian) cannot open a PPF (public-provident fund) Account. However, he can gift money to his close relative in India and take advantage of the tax-free investment.

*A close or blood relative would include any of the following:
  • 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 individuals
  • Any lineal ascendant or descendant of spouse of the individuals
  • Spouse of the Brother / sister of individual or brother/ sister of spouse of individual

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