Clear cut Income Tax rules have been sent with respect to receiving and giving gifts. Let us look at some salient points pertaining to this aspect.
- Gifts that are worth more than Rs. 50,000/- received or given to a person who is not related is fully taxable. The Income Tax Department does not provide exemption from tax for such amounts if appropriate consideration does not exist as specified in the Income Tax rules
- Gifts given to their during marriage, gifts received from a relative, amounts received as a result of execution of a Will or in relation to death of a person are exceptions to the above rule
- Above Rs. 50,000/- is for one single fiscal year which is 1st April to 31st March of the same year. For instance, even if you receive Rs. 75,000/- from 12 persons during the fiscal year, the entire amount is taxable.
- Rs. 50,000/- does not only include cash receipts but also all sorts of gifts received in the form of debentures, paintings, bonds, jewelery and properties. This will be considered as an income and added to your overall taxable income for the fiscal year. Tax will be laid based on this total income. All properties received less than the market value or stamp duty value in consideration will not be added to your taxable income
Tax-free gifts from relatives
Income Tax rules pertaining to receiving gifts from relatives is different from receiving the same from people who are unrelated. According to Income Tax rules, an Income Tax Assessee can give or receive gifts from people who are considered as Lineal descendants. All relatives who are considered as related to each other in a direct manner through ‘ancestor relationships’ are considered as Lineal descendants for the purpose of taxation.
Income Tax department does not have a concept called Gift Tax. This makes people eligible to receive or give gifts to their relatives without paying tax. The term relatives for the purpose of taxation, includes the following people.
- Spouse (Husband or Wife)
- Siblings (Brothers and Sisters)
- Sister by Law or Brother by Law (Sister or Brother of one’s spouse)
- Brother of Husband’s Father
- Sister of Husband’s Father
- Brother of Husband’s Mother
- Sister of Husband’s Mother
- Brother of Wife’s Father
- Sister of Wife’s Father
- Brother of Wife’s Mother
- Sister of Wife’s Mother
- Spouse of all relationships mentioned above
- Any ascendant or descendant by lineage for self
- Any ascendant or descendant by lineage for Spouse
The term Lineal descendants mentioned above refer the list of following relationships given below.
- Grand Children
- Great Grand Children
The term Lineal Ascendants mentioned above refers the list of following relationships given below.
- Grand Parents
- Great Grand Parents
To summarize, gifts received from the following relationships are completely tax free and non taxable.
- Mother in Law
- Father in Law
- Sister in Law
- Brother in Law
Points to note
- Gifts received from Grandparents by Grand children are fully exempted from tax. However, receiving gifts from Mother’s parents are taxable since they are yet to be considered as lineal ascendants
- The gift you give to your daughter-in-law in the form of cash or kind is added to your income and considered for tax calculation purposes. It is totally taxable
- No maximum limit or ceiling has been set for receiving or giving gifts from relatives or to relatives.
- Gift received from relatives on the occasion of an individual’s marriage is fully exempt from tax. The rule clearly says that the marriage must be of the individual Income Tax Assessee and not of his daughter, son, sister or brother
- Properties received as gifts from relatives are tax free as long as the value of stamp duty for registering the same the same does not exceed Rs. 50,000/-
- Some gifts received in kind like Mobile phones, Laptops and Cars are fully exempted from Tax
- Gifts received in any form from relatives owing to their death are fully exempted from when the same is executed through a Will or sheer inheritance
Be aware of the rules pertaining to receiving gifts from relatives or giving gifts to them so the same does not get you into tax implications at any point of time.