A summary on taxability of gifts
Are you worried about the cash gifts received from your near relations? One should know the tax implications of gifts before making or receiving them. At times gifted money becomes taxable at the hands of the recipient.
As per the current gifting provisions in India, if an individual receives cash or other kinds of gifts from persons other than his blood relatives amounting to more than of Rs. 50,000/- in a year, the entire amount will be considered as the said person’s income and is included under the head “Income from other sources” as per the provisions of section 56(2) of the Income Tax Act.
Gifts received by a Trust or an AOP, is not chargeable to income tax as “income from other sources”.
Are all kinds of gifts taxable?
All gifts are not liable to be taxed. The assets for which gift tax is levied are cash, immovable properties like land and buildings, movable properties like shares and other securities, jewellery, art pieces such as paintings, sculptures, etc.
The following kinds of gifts are tax exempt irrespective of any amount:
1. Gifts received at the time of wedding from a relative;
2. Gifts received by Inheritance or Will;
3. Gifts received from any local authority;
4. Gifts received from any educational or charitable institutions.
Implications of making gift in favor of near relations:
Gifts made in favor of spouse, minor for insufficient consideration is treated as income in the hands of the person making the gift.
One can make gift of a movable property to his dependent children who have attained majority and the income earned from such gift will be taxed in their hands which would lower his tax liability.
Near relations include:
Near or close relations include the following –
1. Any lineal ascendant or descendant;
2. Spouse of the individual;
3. Brother or sister of the spouse;
4. Any brother or sister of the person;
5. Any brother or sister of either parents of the person;
6. Any lineal ascendant or descendant of the spouse of the person.
For example, if X receives a gift of Rs. 1,00,000/- in cash from his maternal aunt, that is, his mother’s sister, it would be exempt from income tax as the maternal aunt is the sister of the parent of the person concerned and would come within the explanation of near relations.
If a person making a gift does not belong to any of the above categories, then he is considered as a non-relative and gifts from him would be exempt up to Rs. 50,000/- in a financial year.
When gift from non-relatives becomes tax free?
Gifts received from relatives as well as from non-relatives can be fully exempt from income tax up to Rs. 50,000/- in total during one financial year.