This is the high time receiving or giving gifts as diwali has just passed and Christmas and New Year is coming. But taxability on gifts rule is a thing you hardly keep on mind giving or receiving the gifts. This is the rules of gift as per income tax act 1961.
Gift tax is a bit confusing and it changes 3 times as it first introduced in 1958 which abolished in 1998. It again introduced in 2004 in order to bring gifts in net of taxation.
Income tax act provides that gifts received in form of cash, demand draft, and cheque or specified assets by an individual or HUF are taxable with some exemptions.
Any gift received in excess of Rs. 50000 is taxable in the form of cash, DD, draft or RTGS/NEFT in a year. The whole amount is chargeable to tax if the total gift amount exceeds 50000 and there is no threshold limit.
Income tax act provides gift tax rule as income tax not only apply for cash gift but also on in kind. Income tax also apply on gifting any immovable and specified movable property such as jewellery,paintings, drawings, shares, debentures, bullion , archaeological collections or work of art etc. income tax is chargeable in the hand of recipient.
There are some exemptions to this rule. Any sum or property received by a relative is exempted from income tax.
1- Gift received from blood relatives are exempted above 50000 rupees too. In blood relation these relations come from the income tax point of view.
(a) Spouse (Husband or wife)
(b) Brothers
(c) Sisters
(d) Spouse’s brother
(e) Spouse’s sister
(f) Parents
(g) Parents of spouse
(h) Lineal ascendants of individual or spouse (Lineal ascendants are the persons who are supposed to be parents from the time being)
(i) Brothers or sisters of parents of individual or spouse.
2- Any gift received on the occasion of marriage is exempt even above Rs. 50000.
3- Any amount received under a will or inheritance is also exempt even above Rs. 50000.
Not all relatives come under exemption of income tax act. For example a gift received by an uncle from his nephew is exempt but a gift received by a nephew to his uncle s taxable.
In case of Hindu Undivided Family, a gift received by a HUF from its members is exempted from tax.
Gifts received by a private company or partnership firm in the form of shares of a private company is also taxable if the fair value of shares exceeds Rs. 50000.
An individual or HUF received gifts during the assessment year needs to disclose it in the income tax return under the head Income from other sources.
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