Know about how gifts are taxed and when they are exempted from income tax. Also, how you can avoid it
Giving and receiving gifts are very common in India during the festive seasons. However, most of us may not know that gifts can attract taxes unless they fall under an exempted category. So, whether you have received gifts already or are expecting to receive this Dussehra, Dhanteras and Diwali, you should know about its tax implications.
The provisions relating to gift tax have been dealt with under Section 56(2) of the Income-Tax Act, 1961.
Let's understand in detail:
Tax treatment of monetary gifts received by an individual or Hindu Undivided
When you receive gifts from employer
As per the Income Tax Act, if an employer offers any gift voucher in kind or cash amounting to less than Rs 5,000 during the financial year, then it is wholly exempt. However, if the amount of gift exceeds Rs 5,000, then the whole amount is treated as part of salary and taxed as a 'perquisite', according to one’s tax slab.
When you receive gifts from relatives
Gifts received from relatives are fully exempt from tax without any limit, provided such relative comes under the definition of the relative for the purpose.
This holds true for father, mother, brother, sister and spouse.
When you receive gifts from friends
Gifts received from friends are treated as 'income from other sources' and taxed accordingly. Tax is to be paid in case aggregate of gifts received during a year exceeds Rs. 50,000 in a year.
There is no tax liability as long as gifts received are within the threshold of Rs 50,000 a year.
Note: Gift received on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax.
Tax treatment of movable and immovable property received as gift
If you receive any property (movable or immovable) for inadequate consideration, the difference between the consideration and the stamp duty value will considered as a taxable gift.
In case, the difference between actual value and stamp duty value is less than 50,000, the transfer will not be considered a taxable gift.
How to avoid 'gift tax'?
The best way to avoid 'gift tax' is by avoiding to receive any gift in form of cash or property aggregating more than Rs 50,000.
In case you do, it is better to invest the gifted money. It not only helps in saving tax but also generating tax-free income under prevailing sections offered under I-T laws in the country, experts suggest.