Thinking of gifting? First read how tax could eat up into your precious gifts

Last Updated: Tue, Mar 20, 2018 13:56 hrs

Remember the time when you received gifts as a child, and you never imagined sharing a pie of that with anyone else?Well turns out, bigger the gift is in monetary terms, more is the amount you have to shell out in the form of Gift Tax.

As per the Income Tax Act, 1961 if the value of gifts received is more than Rs 50,000 a year, then the amount will be taxed as income in the hands of the receiver. These gifts may be in any form – cash, jewellery, movable and immovable property, shares etc. The tax on gifts needs to be paid by way of advance tax / self-assessment tax before the tax return is filed by the person receiving the gift.

In July 2017, the government announced that gifts of above Rs 50,000 value in a year, when given by the employer to the employee without consideration and outside the contractual agreement, will come under the ambit of Goods and Services Tax (GST), the Finance Ministry said on Monday.

Always get the documentation done when there is an exchange of big gifts as it always comes handy when explaining the IT department at the time of tax scrutiny.

Adhil Shetty, CEO,

In fact gifts received by a minor will also be taken into consideration and will be clubbed with income if both the parents are earning taxable income. It will be clubbed with the parent who is earning the highest income.

The income tax rules specify relatives from whom tax free gifts can be received. These are:

  • Parents
  • Spouse
  • 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

Proof Of Gift – Deedt 

When you give a gift to someone, it is essential have a gift deed made so that you can show it later for tax purpose. A gift deed is a legal document which is used to describe the transfer of gift from giver to receiver without any exchange of money.

The deed should include the following:

  • Date and place where Gift Deed is made
  • Details of the giver or donor including name, father’s name, date of birth, address and expect Aadhaar to be added to this list
  • Details of the receiver or donee like name, father’s name, date of birth, address, relationship with donor
  • Relationship of receiver or donee with the giver or donor
  • Details of the property that is being gifted
  • Signatures of donor and done
  • Details of two witnesses in whose presence the deed was executed
  • Signatures of the witnesses

How It Is Calculated

Certain moveable assets including jewellery, drawings, paintings, bullion, sculptures, shares and securities received as gifts are subject to tax. In such cases, if the fair market value of the movable property exceeds Rs 50,000, then the entire amount is to be included in the taxable income.

Stamp duty of recommended value has to be paid for registration of Gift Deed. To determine the taxable value of an immovable property received as a gift, you need to check the stamp duty value. If the stamp duty value exceeds Rs 50,000, then the amount chargeable to income tax = Stamp Duty Value – Consideration paid by the recipient, if any.

Few states offer a concession in stamp duty if the property is gifted to family members. Exceptions To Gift Tax

By Inheritance: There is no tax implication of gifts received as a result of inheritance. If the gifts comes to you by way of a will then you aren’t supposed to pay any tax on the amount. But it is not the same for income generated later from the gift like rent from house inherited by you would be taxable.

Marriage Gifts: The best time to save tax is to gift your daughter/son immovable property, gold or cars in marriage as gifts can be exempt. But do ensure that the date mentioned on the gift deed is of your marriage day or at least close to that date.

As Rewards: Gifts received from any local authority / fund or foundation as specified in section 10(23C) / trust / institution registered under section 12AA of the domestic tax laws are exempt from gift tax.

Gifting money to parents: If your parents are retired and do not have any source of income or their income is below the taxability limit, it’s advisable to gift them cash gifts. This cash can in turn be invested in high-return instruments such as senior citizen’s savings scheme.

NRI Relatives: Gifts received by a NRI relative is exempted from gift tax

Always get the documentation done when there is an exchange of big gifts as it always comes handy when explaining the IT department at the time of tax scrutiny. Before making any hasty transfers always, consult your chartered accountant on the tax liability due to investing money received as gifts.

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