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Gifts

Shamita (Learner) (410 Points)

15 August 2011

"Gifts" have always been a key issue in Income Tax. Can anyone provide me all the details about "Gifts". Under what circumstances it will not attract any tax liablity; in which cases the income earned out of gift received will form part of the income of receiver. All issues in one article, please.

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CA.Suresh (CFO) (89 Points)
Replied 20 August 2011

High Value Gifts were a safe haven to show one’s love to others financially. Now the tax man has tightened (putting it mildly) the strings attached to gifts. In fact the rule has become so tight that it may be the end for all high value gifts in India.

Gift Tax Earlier
Since 1998, there is no Gift Tax per say in India. The gift is added to the income of the receiver and is taxed accordingly. Earlier (prior to October 1st 2009), gifts in kind (a car or a house) were not considered at the cash value.
Also all gifts received at the time of marriage were exempt from tax. The gifts could have been from anyone and of any type. This made very high value gifts the norm at the marriages of very rich people. The taxman was hoodwinked by making marriages occasions for large scale conversion of illegal money (black money) into legal gifts.

The New Rule
The change in the rule related to gifts says that the receiver has to pay tax for receiving any gift valued at Rs.50,000 and more. The ‘any gift’ clause means that not only cash but all gifts of any value. So if someone receives a gift of a house worth Rs.30 lakhs, then he/she is automatically in the highest income bracket and has to pay 30% + surcharge on value of the house as tax (close to Rs.10 lakhs in this case).

The rule thus effectively prevents money laundering in the guise of high value gifts.

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Jinesh Aggarwal (Service Man) (45 Points)
Replied 13 September 2011

Thank you Mr. Suresh for this precious information,

I have a querry for you, If receiver sell the same house at Rs. 30 lalks then he/she will be liable for double taxation. Ist one for gift tax & second for capital gain tax ( if he/she does not avail the exemption u/s 54/54F)

am i right or not ?

Mihir (Wealth Manager) (5293 Points)
Replied 13 September 2011

Gifts (money or property) received from a relative will not be taxable.

Relative means

Spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents, any lineial ascedents or descedents, any lineal ascedents or descedents of the spouse.

Money or property received under a will or by way of inheritance is not taxable.