A TAXING SITUATION

Giving gifts to your loved ones could also impose a tax burden on them— except in these cases...

Receiving a gift from a loved one can most certainly bring joy— but with that being said, such gifts can also come with tax liabilities. It’s a sad fact that not all gifts are tax-exempted. “If the gifts received by an assessee during a year exceed the limit of Rs 50,000, then the excess amount is to be included in the total income of the assessee under the head ‘income from other sources’,” says Naveen Wadhwa, DGM at Taxmann. “This income is taxed at the normally applicable slab rates.” It is important to remember that this applies to the total amount received—if the sum total of gifts received during a financial year exceeds the total limit of

Rs 50,000, the excess is not tax-empted. However, not all gifts are taxable in this manner.

➘ FREELY GIVEN AND ALSO TAX FREE

There are certain special occasions—such as marriage, for example—for which gifts received are considered non-taxable. Similarly, any amount received as a gift through a will or as an inheritance is also exempted from tax. Additionally, a gift received from someone contemplating death—in the sense that the gift is given by someone ‘disposing of their assets’— is also exempted from taxes. Aside from these cases, gifts received from local authorities are also exempted. “Any amount received from a fund, institution, university, hospital or other medical institution, or any trust or institution referred in section 10(23C), or a trust registered under section 12AA, is exempted from tax,” says Wadhwa.

➘ IT’S ALL RELATIVE

The tax implication that matters most relates to gifts received from close relatives, as these are often of significant amounts. Gifts received from certain ‘close relatives’ are completely exempted— these relatives include parents, children, siblings and one’s spouse’s parents and siblings. It also includes the spouse of a close relative. Gifts from relatives beyond those specified do not enjoy tax exemption—for example, a gift received from a cousin may not be tax exempt.

It’s also important to note that income earned from gifts received may not be exempted from tax. “If you receive any income from a gift—such as interest, or other gains from investment, you have to report such income in your tax return under the head ‘income from other sources’ and pay tax as per your tax slab”, says Archit Gupta, founder and CEO at Cleartax.

➘ WHEN YOU NEED TO REPORT GIFTS

If your income is above the basic exemption limit—Rs 2.5 lakh for people below the age of 60—it is mandatory to file an income tax return. Therefore, gifts have to be declared as part of your income, even if it is exempt. However, it may not be mandatory if your income is below the basic exemption limit. “[If] the assessee is not required to file a tax return, there is no requirement to furnish the details of the gifts received during the previous year,” says Wadhwa. However, even though it is not mandatory, it would probably be better to disclose it anyway. “You should disclose the value of gifts while filing your tax return. In the case of taxable gifts, the amount is to be mentioned under ‘other sources’. Exempt gifts should be disclosed as ‘exempt income’ in the income tax return,” says Gupta. This will ensure that you have an official record of all gifts received, which can also be of great help in the case of an enquiry by tax officials. ■