Receive gifts,albeit with caution

In India,it is customary to give and receive gifts on different occasions. The tax law pertaining to gifts has also evolved over time to ensure compliance and avoid any tax evasion under the garb of gifts.

In India,it is customary to give and receive gifts on different occasions. The tax law pertaining to gifts has also evolved over time to ensure compliance and avoid any tax evasion under the garb of gifts. Earlier,there was a specific act known as the Gift Tax Act,which was repealed and for some time there was no tax levied on gifts received. Today,again we have specific provisions under the Income-Tax Act,1961,which among other things provide for levy of tax on gifts. Therefore,it is important to understand the broad framework of these provisions.

Where an individual or Hindu Undivided Family (HUF) receives any sum of money during a financial year,without consideration,exceeding R50,000,such sum is taxable as part of the income of the recipient. Similarly,if such individual or HUF receives any immovable or other property,the value of which exceeds R50,000,the same is liable to tax. Property includes immovable property being land or building,shares or securities,jewellery,archaeological collections,drawings,paintings,sculptures,any work of art or bullion.

Some important exceptions have been carved out. These include exemption from tax if such money or property is received from any relative or it is received on the occasion of the marriage of the individual. Similarly,if it is received under a will or by way of inheritance or in contemplation of death of the payer,then again the same is not liable to tax. Also,any such receipt from a local authority or from any fund or educational institution or hospital or such other institution as provided under the act is not taxable.

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Further,for the purposes of this exception,relatives mean spouse of the individual; brother or sister of the individual; brother or sister of the spouse of the individual; brother or sister of either of the parents of the individual; any lineal ascendant or descendant of the individual; any lineal ascendant or descendant of the spouse of the individual. Thus,gifts received from the relatives even in excess of R50,000 would not be subject to tax.

It is also important to note that even though a gift received per se may not be taxed,in many cases income earned on the same may still be taxable. For example,any income arising from any asset transferred by an individual to his or her spouse other than for an adequate consideration is taxable. Similarly,any income arising to a minor child,subject to certain exceptions,is taxable in the hands of the parents as specified under Act. Therefore,gifts,though welcome,should be received with caution.

* The writer is executive director,KPMG

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