(Querist) 02 October 2009
This query is : Resolved
As I understand from the recent Min of Finance notification reg Gift Tax--
a. Close relatives(father,mother,brother
sister etc) can give both property &
cash as gifts without any limit.
b. Non-relatives or distant relatives
can give tax free gifts both cash and
in kind only upto value of Rs 50,000/-
Above Rs.50,000/- gifts in this case
will be considered as "Income From
Other Sources" and taxed in the hand
Is my interpretation correct ? If NOT, can some learned Lawyer give correct interpretation ?
I shall be highly obliged for this.
Major Bhupal Singh ( Retd.)
Presently in Australia
Adv Lucky CS
(Expert) 02 October 2009
It is widely known that gifts from relatives are tax-exempt. But what is not widely known at all is that gifts received even from non-relatives can also be completely exempt from income tax. Here is the complete run-down from a renowned tax expert. It is very common for people to receive gifts from friends and relatives. In some cases, gifts are also received from NRls. Let us consider the latest provisions of the Income Tax Act, 1961 regarding gifts, and analyse how individuals can achieve complete exemption from income tax in respect of the gifts during the current financial year. (The sections mentioned below refer to the Income Tax Act, 1961.)Gifts are Taxable Only in the Case of Individuals and HUFs Under the provisions of Section 56(2)(vi) certain gifts are liable to income tax as "income from other sources". However, this provision is applicable only for individuals and Hindu Undivided Families (HUFs). Thus, if gift is received by any Trust or A.O.P., then it is not liable to income tax as "income from other sources". The provision of taxation of gifts became applicable in respect of gifts received on or after 1.9.2004 and before 1.4.2006 if the gift money exceeded Rs. 25,000. From 1.4.2006, this amount has been increased to Rs. 50,000 so that cash gifts and gifts by cheque or bank draft from non-relatives and from non-exempted categories can be fully exempt from income tax up to Rs. 50,000 in aggregate in one financial year.Gifts from Relatives are Tax-Exempt Importantly, the provisions of the aforesaid Section 56(2)(vi) applicable to the taxation of gifts in excess of Rs. 50,000 in a financial year in the aggregate are applicable for gifts received from non-relatives. Thus, any gift from relatives of any amount during the financial year is completely exempt from tax. Therefore, it's crucial to know the meaning of the expression 'relative' for this purpose. The Explanation to Section 56(2)(vi) provides that the expression "relative" means:
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; and
Spouse of the person referred to in clauses (ii) to (vi).
Gift of more than Rs. 50,000/- can be received from
below mentioned relatives without any taxes
Subject to clubbing provisions applicable for Gift received from Spouse and Father-in-Law.
The individual can receive gifts without attracting tax also from lineal ascendants and decedents of the individual other than those mentioned in the above chart.
Thus, a gift received by an individual from his spouse, or from his brother or sister, or from the spouse's brother or sister, parents, or from any lineal ascendant or descendant of oneself or one's spouse would normally be fully tax-exempt. Similarly, any gifts of any amount whatsoever received from the spouses of any of these persons would also be completely exempt from income tax. For example, if Mr. A receives a gift of Rs. 200,000 in cash from his maternal uncle, that is, his mother's brother, it would be exempt since the maternal uncle would be brother of the parent of the individual concerned and would come within clause (iv) of the aforesaid Explanation. Hence, whenever you receive any gifts from relatives you must carefully apply the test to ascertain whether the person concerned falls within one of the seven categories of "relatives" or not. If a person who makes a gift does not fall within any of the above categories, then he would be considered as a non-relative and gifts from such people would be exempt only up to the extent of Rs. 50,000 in a financial year. It may be noted that since a Hindu Undivided Family can't have relatives, any gifts received by it in excess of Rs. 50,000 in a year would be liable to full income tax.
Tax-Smart 1: Exemption for Marriage Gifts One very happy feature of the provision of of gifts is that any gift received from any person on the occasion of the marriage of the gift's recipient would not be liable to income tax at all. There is no monetary limit attached to this exemption, which is provided by the proviso to Section 56(2)(vi). However, it is not made clear by this provision whether the gifts should have been on the exact date of marriage, or a few days before or later. Normally, it should suffice if the gift is given just on the occasion of the individual's marriage, which means either on the day of the marriage itself or a day or two before or after. Practical common sense view would prevail in such cases.Tax-Smart-2: Tax-Exempt Gifts from Other Persons Besides gifts received from a relative or on the occasion of an individual's marriage, the following are the other gifts which are completely exempt from tax as provided in the proviso to Section 56(2)(vi) of the I.T. Act:1. Gift received under a Will or by way of inheritance;2. Gift in contemplation of death of the donor;3. Gift from any local authority;4. Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution referred to in Section 10(23C); and5. Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 12AA.Thus, scholarships, stipends or charities received from a charitable institution would be completely exempt from income tax in the hands of the recipients without any limit provided the trust or institution giving the charity is registered under Section 12AA. Likewise, all gifts under a Will, and all amounts received on the death of a person as a part of the inheritance are fully exempt from income tax.Tax-Smart 3: Gifts in Kind are Tax-Exempt Here is a point which should be very carefully noted that the provisions relating to taxation of gifts from non-relatives and non-specified persons in excess of Rs. 50,000 would be liable to income tax only when the gift is a sum of money, whether in cash, by way of cheque or a bank draft. Thus, gifts in kind such as a gift of shares, gift of land, gift of house, gift of units or mutual funds, jewelery, etc. would not be liable to any income tax at all. A proper knowledge and understanding of the provisions of Section 56(2)(vi) relating to gifts is very helpful in order to get full tax-exemption in respect of gifts received during a financial year
Changes Proposed In new Budget 2009 from 01.10.2009
Individuals receiving shares, jewellery, valuable artefacts or even property valued at over Rs 50,000 as gifts from non-relatives, will have to start paying tax from October 1,2009 The budget has extended the provision to tax cash gifts in the hands of the recipient to all non-cash gifts as well. These will include shares, jewellery, archaeological collections, valuable drawings, paintings or sculptures. If the value of these assets exceeds Rs 50,000, it will be treated as income for the recipient and taxed according to his or her taxslab. Not just this. Realty deals among nonrelatives for â€œinadeaqute considerationâ€ will also come under the tax net, going by the finance bill 2009. If the property is sold for a song, tax will be imposed on the difference between the state government notified rate and the purchase price. Again, the recipient will have to pay tax. For jewellery or valuable artifacts, received from a non-relative for little or no consideration, a fair market value will be arrived at to determine the tax liability in the hands of the recipient.So above Tax smart Tip3 is effective only up to 30.09.2009.and from 01.10.2009 ,gift in kind from non relative will also be considered towards 50000 Limit /pa.
Lucky A Popli
Legal & Corporate Consultants
Raj Kumar Makkad
(Expert) 02 October 2009
The details provided by Adv. Lucky are self explanatory and welcome. I appreciate Adv. Lucky.
(Expert) 02 October 2009
Well explained by Mr. Lucky
(Querist) 03 October 2009
Dear Sh Popli ji,
I am extremely grateful to you for explaining the provisions of Gift Tax Act & the recent notification also.
My sincere thanx for this.Would call u on return to India.
With warm regards & best wishes,
Major Bhupal Singh ( Retd.)