Things you should know about "Gift Tax" before receiving, giving this festive season
As per the Income Tax Act, 1961 if the value of gifts received is more than Rs 50,000 a year, then such amount is taxed as income in the hands of the receiver.
Receiving and giving gifts is very common during festive and wedding season specially in India where we express our gratitude by gifting something.
Now, that festive and wedding season both right around the corner, it is important to know certain aspects of "gift taxes".
As per the Income Tax Act, 1961 if the value of gifts received is more than Rs 50,000 a year, then such amount is taxed as income in the hands of the receiver. These gifts may be in any form – cash, jewellery, movable and immovable property, shares etc.
According to H&R Block, this rule is not applicable if your relatives present the gifts.
There might be case that just to escape gift tax you can’t call a person your relative saying he is the son of my uncle’s neighbour.
However, to avoid scenarios like these, the income tax rules specify relatives from whom tax free gifts can be received. These are:
- Your and your spouse’s brothers and sisters
- Brothers and sisters of your parents
- Your lineal descendants (including spouses)
- Lineal descendants (including spouses) of your spouse
What in case gifts received from non-family individuals?
If the gift or value of the gift received from someone who is not a family member exceeds Rs 50,000, then it is liable for tax. Gifts under Rs 50,000 do not attract tax. This Rs 50,000 is the aggregate value of gifts received in a financial year.
"Once the aggregate value goes beyond Rs 50,000, the entire gift becomes taxable. This has to be reported in your tax returns under the head of Income from Other Sources. These gifts will be then taxed as per the taxpayer’s applicable tax slab," Archit Gupta, Founder & CEO ClearTax said.
Do not worry about the Income Tax Department questioning you about the car that was gifted by a distant relative at your wedding. But ensure that the date mentioned on the gift deed is of your marriage day or at least close to that date.
Just like marriages, there is no tax implication of gifts received as a result of inheritance. If the gifts come to you by way of a will then you aren’t supposed to pay any tax on the amount. However, the income generated later say by way of rent on a house inherited by you would be taxable.
You need not include the amount you got from local authorities or educational institutions as gifts for your good deeds or on the basis of merit.
So, while you are celebrating festivals and weddings, do not forget to report gifts in your income tax return so as to be compliant.