Gifts can be taxing too

Everybody loves gifts and so does the taxman! If you have been receiving many gifts, then be prepared to shell out some money as taxes. Though, in certain cases, the taxman will let you get away without paying up. Here’s taking a look at gifts that are taxed and those that are not.

According to Section 56 of the Income Tax Act, gifts received by you will be exempt from tax as long as their aggregate value in a financial year does not exceed ₹50,000. But if the gift is from your employer, then only a generosity of less than ₹5,000 will be spared the tax axe.

The ₹50,000 limit, however, applies individually to different categories of gifts. Alok Agrawal, Senior Director, Deloitte Haskins & Sells, gives the details. Gifts received as cash, immovable property and movable property (as specified in the Act) are taxed only when the aggregate value of each of these exceeds ₹50,000. So, in a year if you have received cash gifts worth ₹40,000 and movable assets such as jewellery and paintings worth ₹6 lakh, you don’t have to pay any tax on the cash gift since it falls below the exemption limit. But the entire value of the movable assets gifted will be added to your income and taxed at the applicable slab rate. The fair market value is considered for movable property and the stamp duty value is taken into account for immovable (flat or land) property.

So, does that mean you shouldn’t look forward to any expensive gifts? That’s not quite so. The taxman does not take a fancy to all gifts. He comes knocking on your door only when someone (a non-relative) gifts you one of the following movable assets — shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, a work of art or bullion. So, if a friend gifts you a Rolls-Royce, accept it with a big smile, for the taxman won’t come after you.

Also, if the person giving you a gift happens to be a relative, then whatever be the gift (irrespective of its value), it will not be taxed. But, who does the taxman consider a ‘relative’? The spouse of the individual who has received the gift, the individual’s or his spouse’s brother or sister (and their spouses), brother or sister of either of the parents of the individual (and their spouses) are treated as relatives. Any lineal ascendants or descendants (and their spouses) of the individual or of his spouse too are counted as relatives. These include the individual’s (or his spouse’s) father, mother, grandparents, great grandparents, children, grandchildren, great grandchildren and so on.

Again, you needn’t worry about taxes if you have been left behind a fortune by one of your filthy rich aunts or uncles. Anything received by way of inheritance will not be taxed. “But, do ensure that sufficient evidence is kept on record for anything received by way of inheritance,” says Manish Shah, Director, Deloitte Haskins & Sells.

And finally, you are spared the agony of taxes on your wedding gifts. Gifts that are received ‘on the occasion of marriage of the individual’ are tax-exempt. Does that include gifts received even in the run-up to the wedding? This is what Manish Shah has to say, “A reasonable interpretation could allow the exemption to extend to gifts which are received before or after the actual wedding date, provided it can be proven that it is a wedding gift. But, there is no clarity on this matter.”

Under the Income Tax Act, a ‘gift’ includes not only what is gifted to you for free but also what is given to you at less than market price. So, if someone ‘gifts’ you a plot of land worth ₹50 lakh (stamp duty value) for ₹30 lakh, then you will be taxed on the differential amount (₹20 lakh here) as it exceeds ₹50,000.

For movable property, the differential between the fair market value of the asset and consideration paid , will be taxed.

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