Gifts with income tax
When your gift is tax-free?
It all depends on the gift amount, if the amount is significant, it is more probable that you will end up paying the highest tax rate of 30 per cent on your gift.
The gifts that you receive can be in terms of money or in any other form. They are exempted from tax if in a given financial year they fall under the ceiling amounting to Rs 50,000 or below. Any gift above this value and you will be liable for paying income tax on the gift(s) amount in excess of Rs 50,000.
Archit Gupta, founder and CEO, Cleartax said in a statement, "If the value of the gifts received by you exceeds Rs 50,000 in a year, it will be taxable under the head ‘income from other sources’ and will be taxed according to the individual's tax slab."
The significant gift amount also increases your chances are you will end up paying the highest tax rate of 30 per cent on your gift significantly. For example, if A receives a gift worth Rs 5 lakh, A may have to pay Rs 1.5 lakh exclusive of cess and any surcharges as income tax.
However, there are some examples where receiving gift is completely tax-free. To plan your gifts accordingly to save taxes, you should be aware of these exceptions. These exceptions are as follows:
The first exception is the gifts which you receive on certain specified occasions or in certain manner. For starters, gifts presented to a n individual on occasion of your marriage, engagement, baby shower etc. and by way of will or inheritance are exempted from any type of tax. If a person is contemplating death, and who wants to dispose of his/her assets, gifts you something, it is exempted from tax. Apart from this, there are some definite specified institutions from which any gift received is exempted from tax.
Another gift that is not accounted for tax is when you receive it from any of your close relatives. However, only certain relatives fall under this category which includes gifts from your spouse, lineal ascendants and descendants, your brother or sister, lineal ascendant or descendant of your spouse, brother or sister of your spouse and spouse's all relatives mentioned above.
Disclose gifts in your ITR. Should you?
You are supposed to file ITR if your income is beyond the standard exemption limit of Rs 2.5 lakh for individuals who are below the age of 60. If your income remains below the basic exemption limit even after receiving some gifts, it is not compulsory for you to file the ITR.
However, if you have received a gift of more than Rs 50,000, it should be visible in your income tax return. This works as a historical record and will help you produce evidence in case of any future enquiry. If your income is above the basic exemption limit, it is mandatory for you to disclose your income from all sources including those from gifts, even though you may not have to pay tax on it as long as it fulfils the basic exemption criteria.
