Know about gift tax

Come festival season, gifts from friends, well-wishers and relatives are a given. But did you know that gifts may be taxable? According to the Income Tax Act, money given in cash/cheque or drafts, any immovable property such as land or building or both, and movable property such as shares, jewellery, drawings, paintings or sculptures, gold bars as gifts attract tax. But there are certain exceptions.

What is exempt

Monetary gifts are exempt when the monetary value of all gifts received don’t add up to ₹50,000 in one financial year. Also, gifts from employers are exempt from tax as long as the aggregate value of these gifts does not exceed ₹50,000 in a financial year. When a gift is received from a relative or on the occasion of marriage, it is also exempt from tax. Relatives here are defined as parents, spouse, siblings and spouse’s siblings, parent’s siblings, lineal descendants (including spouses) and spouse’s lineal descendants (including spouses).

Gifts are also exempt when they are received by way of a will or inheritance, in contemplation of the death of the payer, from a local authority or from a fund, foundation, university, or other educational institution, hospitals, or any trust or institution defined as per Section 10(23C) of the Income Tax Act. When money is received from a charitable institution registered under section 12AA too, it is exempt.

Thus, if you have received gifts from relatives and well-wishers for this Dusshera or Diwali, you may be liable to pay tax on it if they don’t meet the criteria for exemption.

In case gifts are received by minors, the above rules apply as well. In this case, the taxable entity will be the minor’s guardians. So, for example, if your child receives a gift that is taxable, then it will be added to the income of the parent who has the higher income.

Documentation

Overall, an individual with an income that falls under the tax slab should know that a ‘gift’ too is seen as an indirect source of income. Ergo, it is taxable based on its value and the situation under which it is offered. Note that income in the form of gifts is shown under the head of income from other sources in your tax returns.

Also, it is vital to keep documentation of all big gifts received or given, along with the date and occasion. These written proofs would help you convince an assessing officer if there is a scrutiny of your assets. If you plan to invest the money received as gifts, consult your chartered accountant and understand the tax liability of such investments before taking a decision.

The writer is Founder & CEO ClearTax