Make the most of tax exemption on wedding gifts

Any gift one receives during such occasions, either from close relatives or others, is not taxed

The wedding season is on right now. It’s not unusual for couples to be showered with an assortment of gifts whose cumulative value runs into several lakh rupees. Taxation of gifts depends primarily on who is making the gift and the occasion when the gift is received. As a newly-wed, are you aware if you are liable to taxation on all those tokens of affection given to you on your wedding?

Are gifts taxable?

To be taxable, gifts need to satisfy a few criteria. One, their cumulative value must exceed ~50,000 in a year. Two, they should come from persons other than direct relatives. Three, they need to come on occasions other than your wedding.

Gifts of any value received from parents, spouse, siblings and their spouses, brothers and sisters of parents or their spouses, or all such relatives of your spouse, are exempt from tax. These constitute your immediate family members. For example, your parents may transfer you ~10 lakh on your wedding or on any occasion. This transfer is tax-free since it comes from a lineal ascendant of yours.

Now, if gifts received from unrelated persons exceed ~50,000 a year, the entire value of your receipts becomes taxable as per your slab rate, as it would be considered 'income from other sources'.

To cite an example, you receive ~49,000 in gifts from people other than immediate family members. This amount is not taxable. Suppose you get gifts worth another ~10,000 from similar sources, then the total value of your gifts (~59,000) would be completely taxed as per your slab rate as ‘income from other sources’.

None of these rules apply when you receive gifts during your wedding, whether from relatives or otherwise. Cash, electronics, movable gifts such as stocks, gold items, jewellery, artefacts, automobiles, etc., and immovable gifts including land and house are all exempted from taxation as per Section 56 of the Income Tax Act.

If an immovable property is being gifted by an unrelated person, the taxation occurs on the stamp duty value of the property up to ~50,000.

Also note that while wedding gifts are tax-exempt, gifts above ~50,000 received from unrelated persons during engagement are not tax-exempt.

Taxation on gold

As per the Taxation Laws (Second Amendment) Bill of 2016, there may be 60 per cent tax plus 25 per cent surcharge and additional cess on ‘unexplained’ gold holdings. The law is meant to target those seeking to use bullion to lock their black money. While there is no specific mention of gold received as gift during weddings, a recent message from the Ministry clarifies that “during the search operations, no seizure of gold jewellery and ornaments to the extent of 500 gms per married lady, 250 gms per unmarried lady and 100 gms per male member of the family shall be made”. It adds that “legitimate holding of jewellery up to any extent is fully protected” as is gold received as inheritance or acquired through disclosed sources, agricultural income, and reasonable household income.

Income generated from gifts is taxable

Though gifts received during wedding are exempted from tax, any income accruing from such gifts is taxable. For example, if you rent out a property that you have received as a wedding gift and earn regular income from it, the amount would be taxable. If you sell such a property, the accrued capital gain would be subject to tax.

However, there is the matter of clubbing of incomes between spouses. A man may gift a property to his wife during their wedding. Any income generated from such a property would be clubbed with the husband’s income and taxed as per his tax slab. If a woman receives cash from her husband which she invests and earns interest income from, the income would be clubbed with the husband’s income and taxed. However, if the income is reinvested and generates further income, this fresh income would be taxable in the woman’s hands.

Gift registry

Wedding gift registries help make the process of giving and receiving gifts easier. This is a service wherein a couple creates a centralised wish list for wedding gifts. The couple then invites their wedding guests to check the wish list to see what items they are interested in receiving as gifts.

While they have been around in offline formats since the 1920s in the United States, online versions have caught on in recent years. Many etailers offer wedding registries. The concept is slowly taking off in India with several online services being offered. In online registries, a couple can easily share their wish list with their guests and also keep track of gifts purchased. Guests can visit the registry to see which wish items have been purchased so they can avoid repeating them. Online registries also take care of shipment of the gifts, which means that couples getting married don’t have to worry about lugging their gifts across the country.

Tax declaration and paperwork

In the post-demonetisation era, cheque payments and online transfers are on the rise, even during weddings. These would appear as entries in your bank account statements and may therefore invite tax scrutiny. While filing your tax returns, you can declare these receipts as wedding gifts in order to claim for tax exemption. However, any interest income earned on these receipts will be taxed as per your slab.

Make sure you maintain documentation for all the valuables you acquire at the time of wedding, especially jewellery, as income tax proof. Keep a list of gifts received during the wedding and for immovable assets, get gift deeds for legal proof of ownership. In case of movable assets, try to get a duly notarised stamp paper.

Your wedding is a good time to acquire assets without paying taxes. However, do keep a record of all the assets you acquire as income tax scrutiny can go back many years and you may find it tough to produce proof.