Tell me his/her name who doesn’t like taking gifts. All of us love to take gifts from our near and dear, but technically it needs to figure out at what cost one receives gift.
Now what is this? Gift is gift after all, why there will be any cost to the receiver? It’s the giver’s responsibility to bear all the costs while gifting, Right?
Query raised here is quite genuine, but if you look from the point of view income tax law “if you receive any gift whether in cash or kind in any particular financial year, you are liable to declare such new additions to assets and pay required amount of tax (if applicable)”.
It is well known that gifts received from relatives (see below the explanation of the term RELATIVE) are tax-exempt. But what is not known by all is that in few occasions gifts received even from non-relatives can also be completely exempted from income tax.
In this article I will take you through various form of gift and the tax liabilities that might levy on the giver or the receiver of the gift.
The Explanation to Section 56(2) of Income Tax Act provides that the expression “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 of the individual;
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)
For example, if Mr. Receiver receives a gift of Rs. 5,00,000 in cash from his maternal uncle, that is, his mother’s brother, it would be exempt since the maternal uncle would be brother of the parent of the individual concerned and would come within clause (4) of the aforesaid explanation for “relatives”.
Under Section 56(2)(vi) of the Income Tax Act, 1961 any gift received between April 1, 2006 to September 30, 2009 where any sum of money, the aggregate value of which exceeds Rs. 50,000, is received without consideration by individual/HUF, the whole of aggregate value is taxable as income from other sources provided that such gifts are not from any relatives (explained above), on the occasion of marriage of the individual; or under a will or by way of inheritance; in contemplation of death of the payer.
Whereas Section 56(2)(vii) of the Income Tax Act, 1961 says, any gift received in kinds by Individual/HUF on or after October 1, 2009 is subject to following conditions;
Gift in case of immovable property
- If you receive any immovable property (like land) without consideration for which the stamp duty value exceeds Rs. 50,000, the stamp duty value of the property will be taxable.
- For a consideration, which is less than stamp duty value of property by an amount exceeding Rs.50,000, the stamp duty value of such property as exceeds such consideration will be taxable.
Gift in case of property other than immovable
- Property other than immovable (such as stocks, bonds, securities etc) received without consideration, the aggregate fair market value (FMV) of which exceeds Rs. 50,000 the whole aggregate FMV of such property will be taxable.
- In case such property received with consideration less than the aggregate FMV by an amount exceeding Rs. 50,000, the aggregate FMV as exceeds such consideration will be taxable.
Remember: Any such gifts as discussed above if received from relatives (as explained above) shall not be treated as income of the receiver, thus it will not be taxable. Example; husband gifts/transfers stocks from his demat account to wife’s demat account or vice-versa.
Let us find out few occasions/situations where there gift are expected to receive and the required tax liabilities on the same.
Gift received at the time of Marriage:
Gift (whether cash or kind) received from any person on the occasion of the marriage of the gift’s recipient would not be liable to income tax at all. Even there is no monetary limit attached to this exemption, which is provided by the provision to Section 56(2)(vi). However, it is not made clear by this provision whether the gifts should have been on the exact date of marriage, or a few days before or later. Normally, it should suffice if the gift is given just on the occasion of the individual’s marriage, which means either on the day of the marriage itself, or a day or two before or after.
Remember: Gift received from any person other than relatives on marriage anniversary will not be exempted from tax subject to the limits exceeds as explained in the section 56(2).
As per the Indian Succession Act deathbed gifts are revocable (capable of being rescinded or voided, cancelled). An emotionally charged person may do things irrationally which he may repent later and seek to renege on. Hence, such gifts are not taxable to the receiver.
Gift received from HUF by a member of HUF:
HUF is a relative for its member and the gift from HUF falls under the exemption provided u/s 10(2) of the Income Tax Act which explains;
Any receipts by members from H.U.F:- any sum received by an assessee in his capacity as a member of a H.U.F is exempt from tax to avoid double taxation as H.U.F is also assessable separately on its income in its own capacity. The sum should be received in the capacity as a member of an H.U.F. If the recipient is not a member of the H.U.F., he cannot claim the exemption. The sum should be received either out of the income of the H.U.F or out of the income of imputable estate owned by the H.U.F under section 10(2).
Thus the “relative” explained in Explanation to section 56(2)(vi) of the Act includes “relatives” and as the assessee (tax payer) received gift from his/her “HUF”, which is a group of relatives, the gift received by the assessee from the HUF should be exempted from tax.
It very much important to understand the clauses/conditions mentioned under section 56(2) with regards to gift which is very helpful in order to get full tax-exemption in respect of gifts received during a financial year. I have tried explaining the jargon of tax law of gift as simple as possible to make you easy to understand. Hope you like it.
Eventually my suggestion would be, that you gift whatever amount or gift in kind to your relatives or non-relatives, always keep a gift deed in place having the list of gifts, amount of gift, date of gift etc and the purpose of gift (most important) for future reference. Though it’s not mandatory, but it’s always recommended to notarise the deed if possible.