It is customary for Indian families to give gifts on any occasion. Section 56(2)(x) of Income tax act, 1961 deals with the taxation of gifts. Know more on what's latest, tax impact, what to care ?
This document covers
- Background & Changes
- Gifts received at the time of Marriage.
- Gift Tax Calculator
- Clubbing of Income
- Disclosure of Gifts in Income Tax Returns
1. Background & Changes over the time
It is customary for Indian families to give gifts on any occasion. Earlier we have gift tax which was abolished in October 1998. Under Gift tax, the donor of the git was required to pay gift tax on the gift if the value is more than Rs 30,000.
W.e.f October 1998, all gifts were made tax free, and many people had utilized this as loophole for tax evading. Hence it was re-introduced in Income Tax act in 2004. This was again amended in 2017.
★ Section 56(2)(x) of Income tax act, 1961 deals with the taxation of gifts.
- As per section 56(2)(x) of Income Tax Act, Gifts are taxable in the hands of recipient of gift unless it is received from the relative as specified in Income Tax Act.
- Friends does not come under the definition of relatives. Hence the gifts received from friends exceeding Rs 50,000 is taxable in the hands of receiver.
2. Gifts received at the time of Marriage
- Gifts received at the time of marriage is exempted from the income tax
- Gifts at the time of marriage can be in the form of money, immovable property, movable property etc
- Marriage is the only occasion where the gifts are not taxable even it is received from any person.
- There is no threshold for the marriage gifts.
- However married couples must maintain a documentation for all the valuable gifts received at the time of wedding for Income Tax purpose.
- Gifts received by the couple at the time of wedding is only tax free. The gifts received by the parents of the couple or other relatives is taxable if it exceeds certain threshold.
- The income tax officer might check for the genuineness of the transaction and if they feel that there is no satisfactory proof or explanation, they might levy 60% tax along with interest and penalty.
Note 1 : Section 56(2)(x) does not clearly state that marriage gifts are exempted. As per 56(2)(x), marriage gifts are outside the ambit of the section. Hence it is interpreted as gifts received at the time of marriage from anyone is tax free
Note 2 : Tax exemption on wedding gifts can be abused by a certain group of people who wield power and authority to avoid paying taxes. Probably the reason to see extravagant behaviour at weddings conducted at who’s who of Indian affluent society.
Note 3 : Marriage gifts received from anyone i.e., relatives, friends etc are not taxable
Note 4 : Apart from marriage, there is no other occasion where gifts received is not taxable
3. Gift Tax Calculator
While this article is specific to Wedding / Marriage, to know the taxability on any gifts, refer gift tax calculator.
Gifts are of three types monetary, immovable property, and movable property, the taxability on such gifts vary depending on the Occasion and the person and/or entity from which such gift was received. Gift Tax Calculator gives you the taxability of a transaction.
Visit Gift Tax Calculator to know the taxability of a gift.
Or get a Tax Consultation appointment from a Tax Expert help from EZTax.in today
4. Clubbing of Income
- Gifts received at the time of marriage is not taxable but clubbing provisions might attract if the gifts are received from certain persons.
- Income received from the gift given to daughter in law by father-in-law or mother in law on the occasion of marriage is taxable (clubbed) in the hands of giver i.e., father in law or mother in law
- If the gifts are given by father in law or mother in law to daughter in law before marriage, gifts are taxable as per 56(2)(x) in the hands of daughter in law if the value is more than Rs 50,000
For Understanding Learn More On @ Clubbing of Income
5. Disclosure of Gifts in Income Tax Returns
Many people think that the gifts received at the time of wedding is tax exempt and not required to disclose in income tax returns. But it is mandatory to disclose the gifts received at the time of wedding in Schedule Exempt income in Income tax returns.
To check taxability on gifts otherthan wedding gifts, refer Tax on Gifts in India | Exemption and Rules