What type of gift is taxed and what is exempted?

Arnav Pandya, Founder, Moneyeduschool, says “if the value is less than 50,000, then no income will be considered as taxable, while gifts of value of above 50,000 are the ones which are liable to be taxed under. Then we come to the third point, which is that if a gift is received from a relative, then that fulfills one of the conditions which exempts the amount from being taxed. So, any amount received from a relative, even if it is above 50,000 would not be taxed in the hands of the receiver.”

There are specific guidelines that if a gift is coming through a relative, no income tax will be levied on that. But there is a specific definition and a specific definition for a person who can be termed a non-relative also. As per the income tax rules, who is defined as a relative and who as a non-relative?

Arnav Pandya: Just to make things very clear, under the Income Tax Act, when a gift is given by a person to someone else, the gift is taxed in the hands of the receiver subject to certain conditions, so that is the first thing. Second thing is that the amount of the gift or the value of the gift also is very important because there is a barrier in terms of Rs 50,000 per year.

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So, if the value is less than 50,000, then no income will be considered as taxable, while gifts of value of above 50,000 are the ones which are liable to be taxed under. Then we come to the third point, which is that if a gift is received from a relative, then that fulfills one of the conditions which exempts the amount from being taxed. So, any amount received from a relative, even if it is above 50,000 would not be taxed in the hands of the receiver.

Now that we have established the fact that gifts received from a relative are not taxable, let us look at what is the definition of a relative. The definition under Section 56 is very clear in terms of who is a relative. For example, for a person, their spouse would be considered as a relative. Similarly, their brother and their sisters along with their spouses, the brother and the brother’s wife, similarly the sister and the sister’s husband would also be considered as a relative.

Then any lenient ascendant or descendant, which means that for example, if you receive a gift from your father or your grandfather, that also would be considered as being a relative and will not be taxed. Then, you go on to the other definitions, which are that if you receive your gift from your father’s brother or sister, which means that if you receive a gift from your kaka or your phoi and their spouses, which means that kaka or kaki and phoi and phua, that also would not be taxed as those are relatives.

Similarly, on your mother’s side, if you receive a gift from your maasi (mother’s sister) and maasi’s spouse, which is a maasa or your mama and mami, (mother’s brother and his wife) that also would be considered as being received from a relative and not taxable.

Another inclusion under the definition of a relative is that if you receive a gift from, say, your father-in-law and mother-in-law or your grandfather-in-law and grandmother-in-law, that also would not be taxable. Any person who falls outside this definition and who gifts an amount more than Rs 50,000, that amount would be taxed in the hands of the recipient.

We are also looking at different types of gifts. We are talking about money as a gift, we are talking about immovable properties or assets as gifts also. Do we have a separate taxation for all of this or when we talk about aggregate value of Rs 50,000 annually, that includes all such type of gifts?

Arnav Pandya: It will include all such types of gifts. The only thing is that we need to ensure that the valuations are done properly. Say, when you give cash, it is very clear as to what is the amount involved. If it is, say, shares, if it is a listed company as per the market value. If it is a property, then you have to look at the stamp duty value which is there. So, the aggregate of these amounts during the year would have to be considered. There is no separate limit for each item.

When we are talking about gifting, we cannot miss out on gold. Is gifting gold also taxed from a non-relative?

Arnav Pandya: Yes, gold is also included. You have to look at it this way that cash is movable property, which would also include shares, bonds, all of those plus immovable property. So, gold will also be covered if it is gifted and only thing is that one has to remember that there is also another condition which is there for exemption of these gifts. So, apart from being received from a relative, if you get any gifts at the time of your wedding, that is also exempt.

For example, there is a difference in terms of when you receive gold. So, gold received, for example, at the time of your wedding would be exempted from taxation. But if that is received during any other point of time, and it is received from a non-relative, then you will have to do the valuation part and see what is the amount and that would be considered as income.

Similarly, there are also a couple of other exemptions there. If you receive an amount under a will or as an inheritance, that also would not be taxable. That is another example where an individual can benefit because any amount received through that process which comes down from the family is also not taxable.

What is the taxation rule for someone who is giving the gift and someone who is receiving the gift?

Arnav Pandya: If you are giving the gift, that is not a problem because there is no tax on the giver of the gift. It is only the recipient who has to consider the value. So, for example, if you are receiving an amount from a relative, then there is no amount which you have to add to your income. But say you get Rs 5 lakh from a non-relative, that amount you receive has to be added to your income under the head of income from other sources and then based on what slab you fall under, you will have to pay tax on that particular amount.

So, the point is very clear, at the time of receipt you have to include it in the income of that particular financial year and pay tax. If it is just cash, then that cash amount has to be included. If it is something like shares, then one also has to look at the fact that what will be the future taxability because if there is an investment which is giving rise to income, so for example, say you get shares during the year and then during the financial year the shares also declare a dividend, so that dividend would also be taxed in your hands because that becomes the income of the recipient. So, one has to keep that in mind in case of shares, the capital gain will arise only if you sell the shares.

During a wedding or a childbirth, you get a lots of gifts and lots of different types of gifts. How can you just maintain an account of what kinds of gifts you are getting from what kind of a relative and how should you be paying up tax for it?

Arnav Pandya: In the case of a wedding, it is very simple because you have to maintain those records regarding what was received at the time of the wedding and since that is exempt, so there is also clarity in terms of that there will be no tax impact at this point of time.

Now, in case you are getting an amount, say in the name of a child, then two things happen. One, cash is received, you have to record where is it deposited because if it is received from say, a relative, then there is no question of any taxation and that is what usually happens in Indian families that a newborn child or also on their birthdays and all, the family members give some money. But say it is received from someone else, then obviously, the child is not filing an income tax return on their own as long as they are minors; but if a child’s income arises, that is clubbed with the income of the higher earning parent and then it is taxed. So, that also has to be taken into consideration.

For example, when shares are given in the name of the child and then a dividend arises on it, that dividend becomes the income of the child. But since the child is not filing a return, that dividend income will be clubbed with that of the parent and there is a minor amount of 1500 which is allowed as a deduction and the rest will be taxed in the hands of the parent. So who is giving the gift to the child has to be considered and also if it is invested, then the amount which arises from it, that has to be clubbed with that of the parent.

Harry Byrne

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