Dear friends,
The festive season has started, and giving and receiving gifts is common during this period. Since the last few years, gifts in the form of certain assets, received by a taxpayer, are taxable under “income from other sources”. Here’s an account of the types of assets received by way of gift that are taxable, and the limit for such gifts.
Gifts in the form of money (whether received through cheque or in cash) are taxable if the total amount of gift of money received by you in a year exceeds Rs. 50,000. If you receive gifts worth Rs. 51,000 in a year, there is no exemption for Rs. 50,000, and the entire Rs. 51,000 is taxable.
Gifts received in the form of certain movable assets, such as jewellery, shares and securities, archaeological collections, drawings, paintings, sculptures, any works of art or bullion, are also taxable if the total value of all such movable assets received during the year exceeds Rs. 50,000. This limit is in addition to the limit of Rs. 50,000 for gifts received in the form of money. Gifts received as any other movable assets are not subjected to tax.
Similarly, gifts received of immovable property are also taxable if the stamp duty valuation of each such immovable property is more than Rs. 50,000. This limit is in addition to the two earlier mentioned limits of Rs. 50,000 for money gifts and Rs. 50,000 for movable assets.
In case of a minor, the limit of Rs. 50,000 for each of these categories of gifts will be separate and in addition to the exemption limit available to the parent with whose income the income of the minor is to be clubbed. This is on account of the fact that the income of the minor has to be computed separately in the hands of the minor, and then included in the income of the parent.
There are exemptions for gifts received from specified relatives, gifts received on the occasion of marriage of the taxpayer, assets received under a will or by way of inheritance, gifts received in contemplation of death of the donor, or gifts received from charitable organizations. Such gifts would not be taxable at all. Gifts received on the occasion of marriage should, however, not include gifts received at the time of engagement or any pre-marriage function. Also, gifts received by parents of the bride or of the bridegroom will not be exempt from tax.
The list of specified relatives includes the spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or descendant, any lineal ascendant or descendant of the spouse, and the spouse of any of the above persons. The relation has to be seen from the context of the recipient. Therefore, if you receive a gift from your uncle (father’s or mother’s brother), such a gift would be exempt. However, there is no corresponding exemption for a gift given by you to your uncle, and your uncle may end up paying tax on such a gift.
A Hindu undivided family (HUF) is not among the list of specified relatives. So, will a gift received by you from your HUF be taxable? A recent tribunal decision has held that the HUF consists of all specified categories of relatives, and therefore a gift received from your HUF is really a gift received by you from all these relatives and would therefore be exempt from tax.
The list of the specified assets also does have some nuances. For example, the term “bullion” implies a mass of valuable metal, such as gold or silver, and would not include gold or silver coins. Such gold or silver coins would also not amount to jewellery, and therefore gifts in the form of gold or silver coins may escape tax altogether. Similarly, gold watches or silver utensils may not amount to jewellery if they are meant for regular day-to-day use, and gifts of such items may also not be taxable.
Similarly, stamp collections or coin collections or antique furniture may not amount to works of art or archaeological collections (unless of course the coins belong to a lost civilization, having been excavated from the ruins), and gifts received in the form of such items may again not be subjected to tax as income of the recipient.
A concept of deemed gifts has also been introduced, whereby if an asset is acquired for less than its fair market value, the difference would be taxable as income. Rules have been laid down for valuation of such assets. These would be discussed in a separate article, since there are various issues involved.
To conclude, receiving gifts is no longer a pure, undiluted pleasure. It comes now with the obligation
With regards,
Bipul Kumar
Wisdom Management Consultancy Private Limited
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