Gift Tax : Exemption Rules And How To Save Tax | Guide

According to economics, gift tax is generally preferred as the tax on money or property that one person gives to another received upon some circumstances like death of a person are considered separately under the tax of inheritance generally many gifts do not undergo taxation because of exceptions given in tax laws.

Tax Amount Is Proportional To Jurisdiction

The gift tax amount is proportional to jurisdiction and international comparison of rates is complex and fluid gift tax in India comes under gift tax act which was constituted on April 1, 1958.

As per the act all gifts which are above Rs 25,000 in the form of liquid cash, draft check or others received from one who doesn’t have any blood relations or any relation with the recipient involves taxable gift tax came into existence except in some areas like jammu and Kashmir.

However with the effect of gift tax from October 1, 1998  gift tax  got demolished and all the gifts made on or after the date were free from tax exception but, in 2004 the gift tax act was revived partially a new provision came into existence in the income tax act 1961 under section 56(2).

  • According  to the changes made in gift tax the gifts received by any individual or Hindu joint family or Hindu undivided family(HUF) in excess of Rs 50,000 in a year would be taxable.

Generally a country like India who express our love and affection through gifts for example brothers gifts on raksha bandan for every occasion parents gift their children this gifts is mostly seen in marriages.

Is Tax Really Applicable Above 50,000

where grandchildren are the recipients of loads of gifts from grandparents we often hear of cars being gifted and homes being given to family members but do these gifts turn taxable for a limit but do elders need to pay income tax on gifts before presenting them ?

However this rule is not applicable :

If one of your relatives presenting you the gifts this is one of way to escape gift tax in India you generally can’t call a person your relative saying he is son of my neighbour’s vendor’s sister to avoid sceneries like these :

  • some exceptions are made in the income tax rules which specially specify relatives from whom tax gifts can be received these are as follows :

Parents, cousin, spouse we and our spouse brother and sister, brothers and sisters of our parents and our lineal descendants also gifts can be exempt if the gifts is not received from these relative if they are received during our marriage.

so stop panic about the income tax department questioning you about the house 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 on inheritance also has no tax implication of gifts received if the gifts we receive is according to the will then we don’t  need to pay tax on the amount.

However the income generated on the inheritance would be taxable like interest on money and house rent you does not need to include the amount you got from one of your local authorities or educational institutions as gifts for your good deeds or on the basis of merit.

Always Maintain Necessary Proof Documents 

Always we have get the documentation right when there is exchange of big gifts and note the occasion on the document it would be easy if we have enough proof to convince the officer on tax security we have to consult our charted account on the liability of tax.

Due to investing money received as gifts some rules may be related to clubbing of income would apply on certain instances thereby increasing the liability on tax beware of I-t clubbing provisions if you gift your child who is a student a cheque of R 1 lakh cheque if he gets interest on it, this interest would be clubbed with your income.

What To Do If It Is Crossed Over 50k

Cash or gifts up to 50,000 from non relatives is non taxable in a year however if it is  say Rs 55,000 then this entire value of Rs 55000 is added to your gross total income and we have to pay for it a per our tax slab.

In case if you gift an immovable property without any consideration and the stamp value exceeds of Rs 50,000 it is stamp duty value which is one of the part of our gross income.

But if we pay some consideration but it is still less than the stamp duty value the difference is added to our income for some other presents other than the immovable property say like jewellery the same principle applies to it except that market value such a gift is considered.

Under IT law any total sum of money any movable or immovable property received by you without any consideration is chargeable to tax as income from other source even if we win a lottery or a interest income these all fall under this category  .

  • A separate gift tax does not exists but if you receive a gift or if we win the lottery this comes to our gross income and be taxable.

Article 246 of the Indian constitution it distributes the legislative powers including taxation is divided between the parliament of India and the state legislature schedule 7 in the parliament enumerates these subject matters with the use of three lists

  • List-1 entailing some of the areas on which only the parliament is competent to make laws.
  • List-II entailing some areas on which state legislature can make laws.
  • List-III listing all the areas on which both the parliament and the legislature of state can make laws upon concurrently.

 

GIFTS EXCEMPTED FROM TAX

Gifts can be exempted from the gift taxation in the following cases :

  • If the gift was given by any blood relative it is irrespective of the value of the gift and the immovable properties outside India.
  • An individual cannot take the movable properties outside India unless the donor who gives to the recipient.
  • Is an Indian citizen who is resident of India or he is the resident of India during the year of gift.
  •  Out of the balance gift from NRI (Non resident of India) in his non resident account.
  • Foreign currency exchange from a convertible exchange of gift remitted outside India by an NRI to a resident relative.

 

According to special bearer bonds in 1991

  1. Special certificates issued by the central government is exempted.
  2. Up to 10, 00,000 capital investment bonds per year.
  3. Some relief bonds by an original subscriber.
  4. Gift to the local government or local authority.
  5. Gifts to any of the charitable trusts.
  6. Gifts to any notified temples, churches, mosques, gurudwars, and other places of worship.
  7. Gifts to the children for the occasion and educational purpose.
  • Gifts by the boss of a company to its employees in the form of bonus, gratituty, or pension.
  • Gifts under inheritance under will and the contemplation of death.
  • Gifts of some certain bonds from the NRI to his friends or relatives which are subscribed in foreign currency generally it is specified by the central government.

 

According to the laws in the Indian constitution we can receive gifts from some following sources

  1. Relatives or blood relations
  2. At the time of marriage and at inheritance
  3. In contemplation of death of the individual

However gift act 1958 was not initially applicable to Jammu and Kashmir however certain changes are made in the income tax provisions in income tax act 1961 would be applicable of movable properties in the said state as well.

Generally gift means the transfer by one individual to another individual of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth

Donne means any person who accures the property under the gift and where the gift acts as a trustee for the benefit of another person includes both the trustee and beneficiary, donor means any person who makes a gift.

If anyone unexpectedly deposits some money in our bank account what is taxation angle a lot of persons take money from another friend for few months with some interest and then return it back but we never think about taxation angle if your parents pay some money to your account to pay loan then we never think of who would pay tax on that amount for.

A gift is deed that is executed and delivered in which the donor transfers to the receiver without any payment or considerations it is a document which transfer the legal title of the property to the Donne which the consideration is not mandatory but it is made with the love and affection.

Gift is made in  the form of cash or cheque does not mandatory requires to be executed through a gift deed generally writing a plain typed note on a paper  will generally sufficient it is not required to be stamped or registered.

As far as we make the transactions with justification we need not to worry about any tax however it is always helpful it is good and safe practice to document things on paper with perfect signatures this will be helpful during economic scrutiny,

  • Stronger the documentation and proofs available the smoother the situation will be during income tax raids.

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