By Parizad Sirwalla
"The greatest gift that you can give to others is the gift of unconditional love and acceptance" - Brian Tracy.
Having said that, let's accept that we all are equally pleased to receive worldly presents as well. And as we live in this materialistic world where gift exchanges are often in cash or kind, let us not forget about the taxman who keeps a close eye on all such transactions.
While gifts from certain people or presents received on certain occasions are non-taxable, you will have to pay a cut to the taxman at other times. Here is what the Income Tax Act has to say on getting gifts.
TAX-FREE PRESENTS
Gifts received from certain specified relatives are not taxable. Here, according to the I-T Act, 'relatives' mean the spouse of the individual, siblings of self or spouse or parents, any lineal ascendant or descendant of the individual as well as the spouse and the spouses of all these persons. Also, if the gift is received by a Hindu Undivided Family (HUF), any member of the said family is regarded as a specified relative for the HUF.
1. Gifts received on Marriage-Individuals receiving gifts on his / her marriage are not liable to pay tax on such gift whether received from relatives or non-relatives. However, the gifts received by the parents or other relatives of the individual getting married are not tax exempt.
2. Inherited Gifts - Any gift received under a will or by way of inheritance, or in contemplation of death of the payer is not taxable in the hands of the recipient.
3. Gifts from specified institutions: A gift received from a specified local authority would not be taxable. Similarly, a gift received from a duly registered specified trust/ institution (e.g. registered religious or charitable trust) or from any specified fund / foundation/university / hospital or medical institution (e.g. the Prime Minister's National Relief Fund, the National Foundation for Communal Harmony, etc.) is not taxable.
THE TAXABLE PRESENTS
As per the I-T Act, cash or specified moveable property such as shares, securities, jewellery, paintings, sculptures, any work of art or immoveable property ( land, building or both) received by an individual or a HUF is considered taxable.
1. Cash - If aggregate amount is equal to or less than Rs 50,000 then nothing is taxable. In case the value exceeds INR 50,000, the whole amount will be taxable.
2. Immovable Property:
TaxabilityImmovable property transferred without consideration Immovable property transferred for a consideration For the receiverWhere the stamp duty value of the property exceeds Rs 50,000, then such stamp duty shall be treated as income.Where the stamp duty value exceeds the consideration by more than Rs 50,000, then the differential amount shall be treated as income.
3. Moveable property - The taxability is same as above except fair market value (FMV) is replaced by stamp duty. The FMV is determined as per the prescribed valuation rules.
GIFTS RECEIVED FROM EMPLOYER
Gift, voucher or token received by an employee or member of his household on ceremonial occasion or otherwise from the employer, is not taxable provided the value thereof is less than Rs 5,000 during a financial year. The ceremonial occasion could be birthday, anniversary of employee, festivals, etc.
If the value of such gift/ voucher/ token is Rs 5,000 or more, the full amount is treated as taxable salary in the hands of employee. Further, any gift received in cash or convertible in money (cash cheque) from employer shall be fully taxable income in the hands of the employee.
INCOME EARNED FROM GIFTS - CLUBBING PROVISIONS
An important point to note is that even though the gift received may not be taxed in the hands of receiving individual, in view of the abovementioned exceptions, the income subsequently earned from such gift might be taxable either in the hands of the individual gifting the item or the person receiving it. For instance, any income arising from the asset transferred by an individual to his/ her spouse other than for adequate consideration is taxable income. Such income is then clubbed in the hands of spouse who gifted the asset.
The bottom line then, in the joy of giving and receiving, lies in not forgetting about the tax implications. Some caution is advised as the section on 'gifts' under the Income Tax Act is a tricky one.
(The author is Partner and National Head - Global Mobility Services, Tax, KPMG in India)
"The greatest gift that you can give to others is the gift of unconditional love and acceptance" - Brian Tracy.
Having said that, let's accept that we all are equally pleased to receive worldly presents as well. And as we live in this materialistic world where gift exchanges are often in cash or kind, let us not forget about the taxman who keeps a close eye on all such transactions.
While gifts from certain people or presents received on certain occasions are non-taxable, you will have to pay a cut to the taxman at other times. Here is what the Income Tax Act has to say on getting gifts.
TAX-FREE PRESENTS
Gifts received from certain specified relatives are not taxable. Here, according to the I-T Act, 'relatives' mean the spouse of the individual, siblings of self or spouse or parents, any lineal ascendant or descendant of the individual as well as the spouse and the spouses of all these persons. Also, if the gift is received by a Hindu Undivided Family (HUF), any member of the said family is regarded as a specified relative for the HUF.
1. Gifts received on Marriage-Individuals receiving gifts on his / her marriage are not liable to pay tax on such gift whether received from relatives or non-relatives. However, the gifts received by the parents or other relatives of the individual getting married are not tax exempt.
2. Inherited Gifts - Any gift received under a will or by way of inheritance, or in contemplation of death of the payer is not taxable in the hands of the recipient.
3. Gifts from specified institutions: A gift received from a specified local authority would not be taxable. Similarly, a gift received from a duly registered specified trust/ institution (e.g. registered religious or charitable trust) or from any specified fund / foundation/university / hospital or medical institution (e.g. the Prime Minister's National Relief Fund, the National Foundation for Communal Harmony, etc.) is not taxable.
THE TAXABLE PRESENTS
As per the I-T Act, cash or specified moveable property such as shares, securities, jewellery, paintings, sculptures, any work of art or immoveable property ( land, building or both) received by an individual or a HUF is considered taxable.
1. Cash - If aggregate amount is equal to or less than Rs 50,000 then nothing is taxable. In case the value exceeds INR 50,000, the whole amount will be taxable.
2. Immovable Property:
TaxabilityImmovable property transferred without consideration Immovable property transferred for a consideration For the receiverWhere the stamp duty value of the property exceeds Rs 50,000, then such stamp duty shall be treated as income.Where the stamp duty value exceeds the consideration by more than Rs 50,000, then the differential amount shall be treated as income.
3. Moveable property - The taxability is same as above except fair market value (FMV) is replaced by stamp duty. The FMV is determined as per the prescribed valuation rules.
GIFTS RECEIVED FROM EMPLOYER
Gift, voucher or token received by an employee or member of his household on ceremonial occasion or otherwise from the employer, is not taxable provided the value thereof is less than Rs 5,000 during a financial year. The ceremonial occasion could be birthday, anniversary of employee, festivals, etc.
If the value of such gift/ voucher/ token is Rs 5,000 or more, the full amount is treated as taxable salary in the hands of employee. Further, any gift received in cash or convertible in money (cash cheque) from employer shall be fully taxable income in the hands of the employee.
INCOME EARNED FROM GIFTS - CLUBBING PROVISIONS
An important point to note is that even though the gift received may not be taxed in the hands of receiving individual, in view of the abovementioned exceptions, the income subsequently earned from such gift might be taxable either in the hands of the individual gifting the item or the person receiving it. For instance, any income arising from the asset transferred by an individual to his/ her spouse other than for adequate consideration is taxable income. Such income is then clubbed in the hands of spouse who gifted the asset.
The bottom line then, in the joy of giving and receiving, lies in not forgetting about the tax implications. Some caution is advised as the section on 'gifts' under the Income Tax Act is a tricky one.
(The author is Partner and National Head - Global Mobility Services, Tax, KPMG in India)
Source:-The Economic Times
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