Gifts: Exemptions
Gifts: Exemptions and computation
Receiving Gift indeed brings a cheerful smile on the face of
the receiver, but if receiver gets to know that he has to pay tax thereon, the
smiling face may turn sad.
Although Gift Tax Act has been abolished, however there are
certain provisions in the Income Tax Act, which make the gift taxable in the
hands of the recipient.
Today we shall share with you certain circumstances when the
gift so received is not taxable in the hands of the recipient.
If a person receives Gifts (either in cash or in kind) from
any person, gift tax is to be paid by recipient of gift. Such income would be
taxable in the year in which the gift is being received and taxable under head
income from other sources. After adding the value of Gift so received to income
under head other sources, the gross total income would be computed and the tax
would be levied on the gross total income as per the income tax slab rates.
A – Exemption from
levy of Income Tax on Gift
Income Tax on Gift received by an individual or HUF is
governed by provisions of Section 56(ii) of the Income Tax Act. As per the
provisions of this Section, Gift Tax will not be levied under the following 7
circumstances:-
1. Gifts received
from Relatives
Gift received from Specified Relatives is fully exempted and
no income tax would be levied on such Gifts. The persons who constitutes
relatives for this purpose are defined as under:
1.Spouse of the Individual
2.Brother or Sister of the Individual
3.Brother or Sister of the spouse of the Individual
4.Brother or Sister of either of the parents of the
Individual
5.Any Linear ascendant or descendent of the Individual
6.Any Linear ascendant or descendent of the spouse of the
Individual
7.Spouse of the person mentioned above
There is no maximum limit on the value of gifts received to
be exempted from Gift Tax. All gifts received from relatives (irrespective of
value) are exempted from the levy of Gift Tax.
2. If the aggregate
value of gifts received is less than Rs. 50,000
Income tax Act has defined Rs. 50,000 as the exemption
limit. If the total value of gifts (whether in cash or in kind) received from a
persons (except relatives as specified above) in any financial year does not
exceed Rs. 50,000/-, then such gift are not liable to Gift Tax. However, if the
value of gifts received exceeds Rs. 50,000/-. Then the entire gift so received
is taxable as Income from other sources.
3. On the occasion of
Marriage of the Individual
Gifts received by an individual on his own marriage are
fully exempted from Gift Tax. It has also been clarified that the gifts
received by a person on his own marriage are exempted and not on the marriage
of their son/daughter/brother/sister.
4. Gift Tax on
Property received
Prior to 2009, gifts
received in kind were not taxable but now, they are taxable now.
Gift Tax on Assets received in kind would be levied in the
following manner:-
◦In case the property is received without any consideration,
the stamp duty value/fair market value of the property would be taxable
(provided the stamp duty value exceeds Rs. 50,000);
◦In case part consideration is being paid by the person
receiving the gift, and the difference between the part payment made and the
stamp duty value/fair market value is more than Rs. 50,000/-, such difference
would be taxable.
In case of Immovable Properties, the stamp duty value would
be considered and in case of Movable Properties, the fair market value would be
considered.
The meaning of
property has also been defined and Property means:-
◦Immovable Property being land or Building or both
◦Shares and Securities
◦Jewellery
◦Archaeological Collections
◦Drawings
◦Paintings
◦Sculptures
◦Any other work of Art
Tax on Property received as Gift would only be levied in
case of the above mentioned properties. Thus, in case any property is not
listed above, tax on those properties received as gift would not be levied.
Examples of such properties on which gift tax would not be levied are Cars, Laptops,
and Mobiles etc.
5. Gifts received
under a Will or by way of Inheritance or in contemplation of death of the payer
Any amount received under a will or by way of inheritance or
in contemplation of death of the payer is fully exempted in the hands of the
person receiving the gift. There is no maximum limit in this case and the whole
gift received is considered as tax free.
6. Gifts received
from any Local Authority as defined in Section 10(20) is also exempt.
7. Gifts received
from any fund or foundation or university or other education institution or
hospital or other medical institution or any other trust or institution
referred to in section 10(23C) or Gifts received from any fund or Institution
registered under Section 12AA
B – Capital Gains on
Assets received/transferred as Gifts
In the hands of the
person giving the gift
If a person gives gifts to another, then such gift would not
be regarded as transfer and therefore no capital gains would arise in the hands
of the transferor i.e. the person who is giving the gift. And therefore, at the
time of giving the gift, no tax would be required to be paid by the person
giving the gift.
In the hands of the
person receiving the gift
◦The Cost of acquisition in the hands of the person
receiving the gift would be the same as the cost of acquisition in the hands of
the person who gave the gift.
◦For the computation of period of holding, the period of
holding in the hands of the person giving the gift would also be included.
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