Gift smart to avoid tax

Planning to propose on bended knee and slip a big, shiny solitaire on to your lady love’s ring finger? Nice. But we suggest you preserve the diamond for the wedding or later. If the lady asks why, don’t miss the opportunity to make an impression.

Look into her eyes deeply and reply softly that it’s just to help her save tax!

High-value gifts in cash or kind have tax implications. If the total value of gifts you receive in a year exceeds ₹50,000, you have to declare it as ‘income from other sources’ and pay tax on the entire sum.

But the taxman, considerate soul that he is, has provided many exceptions to the rule. The big one is that gifts you receive for your wedding are out of bounds. It doesn’t matter whether you get the gift from a relative or someone unrelated; it also doesn’t matter if the value of the gift exceeds ₹50,000. And it’s not that gifts received only on the wedding date are exempt, even those you get in the run-up to the function or a few days after don’t attract tax. So it’s best to time big-ticket gifts for the wedding season. Saving the precious stone for occasions after your wedding also makes sense. This is because gifts given by relatives are always exempt.

So if you charm your girlfriend with a costly solitaire, it attracts tax, but if you do the same for your wife, she doesn’t have to pay tax.

The spouse is not the only relative. The taxman is liberal and provides scope large enough to include an extended family as huge as the one in Hum Aapke Hain Kaun . Parents, grandparents, brothers and sisters, children and grand-children are all relatives. So are the parents, brothers and sisters of your spouse and the brothers and sisters of your parents. Besides, the spouses of all the above persons are considered relatives. Gifts from the above persons are exempt from tax. That said, it’s advisable to have the paperwork in place, just in case the taxman comes knocking later. A document which mentions the details of the gift and is signed by the giver and the receiver is a good idea.

There are other exceptions too. For instance, if you inherit gifts or receive them through a will, you don’t have to pay tax.

Besides, gifts received from approved funds, hospitals, trusts or institutions are exempt from tax.

Also, when it comes to gifts in kind, not everything you get is taxable.

For instance, if friends or business associates flood your house with chocolates and sweets on Christmas, Eid or Diwali, relax – you don’t have to pay anything to the government.

But you will have to shell out tax if someone who’s not a ‘relative’ gifts you land, building, shares, other financial securities, jewellery, drawings, paintings or any works of art, sculptures and archaeological collections. So if on your golden wedding anniversary, your childhood friend gifts you an exquisitely chiselled Chola bronze replica costing more than 50 grand, be polite and say thanks, but get ready to pay tax.

Moveable properties such as jewellery or stocks are valued on the basis of their market rate, while the government-determined stamp duty value is the relevant yardstick for immovable properties such as land and building.

Note that a gift doesn’t have to be something given free. So if you get something for less than its value, that’s also considered a gift for tax purposes.

In such cases, if the difference between the actual value of the gift and what you pay is more than ₹50,000, you will have to pay the government its due.

The trouble is that individual gifts you get may be valued at less than ₹50,000, but put together, if all that you receive during the year exceeds this threshold, you have to pay tax on the whole sum. So, if you get ₹25,000 in cash from A and a painting valued at ₹30,000 from B, you have to pay tax on ₹55,000. Not fair, you say? But such is life.

Finally, remember that you could get clubbed by the taxman. Sure, your wife or daughter-in-law don’t have to pay tax on gifts you give them, but if they derive any income from such gifts (for instance, rent on a gifted apartment), such income will be treated as your own and is liable to taxation.