Confused about gift taxes? Tips by CA in Udaipur.

“Section 56(2)(x) cracked down on gifting as tax planning in 2017. Get key need-to-knows from leading chartered accountants in Udaipur. And learn how to gift without extra taxes.”

Gifting is Tax planning in which people use it to convert black money into white. An attempt has been made to stop this trend by amending Section 56(2) from time to time. Clause (x) has been added to Section 56(2) with effect from 01.04.2017 which is as follows

With effect from 01.04.2017, a new clause (x) has been added in section 56(2) according to which any gift will be considered taxable if it fulfills the following conditions –

  1. It must be received by an individual or HUF.
  2.  It must have been received on 1 April 2017.
  3.  The Gifts fall in to the following 5 categories:-
Sr.No.CategoryTax  liability
 aBy cash, Cheque or draftIf more than Rs 50,000/- is received from one or more persons, the entire amount is taxable.
 bImmovable Property received without considerationIf any immovable property is received without consideration whose stamp duty value is more than Rs 50,000/-  then it will be taxable.
 cReal Estate property received at lower considerationIf an immovable property is received at a consideration less than the stamp duty value, the difference amount will be considered taxable.
 dMovable Property received without considerationIf one or more movable assets whose value exceeds Rs 50,000/- is received without consideration, then it will be considered taxable.
 Movable Property received at lower considerationIf any movable property is acquired at less than the market price and the difference amount is more than Rs 50,000/-  and the difference is more than 10% of  the consideration, then the difference between the market price and the actual consideration will be considered taxable.

4. Non Taxable Gifts :- Gift received is not taxable in the following cases

Sr No.Particulars
 aIf the money/property has been received from a relative
 bIf the money/property is received on the occasion of marriage
 cIf the money/property has been received as a will or inheritance.  
 dIf the money/property is received due to the death of the testator
 eIf the money/property has been received from a local institution
 fIf the money/property has been received from a fund, foundation, university, other educational institution, hospital, trust or institution falling under section 10(23C).  
 gIf the money is received from a charitable institution falling under Section 12A or Section 12AA.  

5. Definition of Relatives includes

Sr No.Types of R
 aYourself or husband and wife.  
 bOwn siblings and their husbands and wives
 cBrothers and sisters of husband or wife and their husbands and wives
 dOwn parents’ brothers, sisters and their husbands and wives
 eOwn ancestral descendants and their husbands and wives
 fAncestral descendants of husband or wife and their spouses.

6. Wedding Gift

If any gift is received on the occasion of marriage, is not taxable.  It covers only wedding gift whether received in cash without any limit from relatives or others.  Gift received on reception after the wedding is a part of the wedding, hence in our opinion the gift amount received at the wedding and reception will be covered under section 56(2)(v), 56(2)(vi), 56( Exemption under Section 2)(vii) and Section 56(2)(x) should be available. However the engagement gift is not covered under this.

Wedding gift amounts, whether received from relatives or others, will be tax free. If a person has more than one marriage, the cash gifts received at each marriage will be tax free.

Gifts received on marriage are tax free provided it is received by the taxpayer on his marriage. If someone gives a gift to the father at the time of son marriage then it is taxable in the hands of father if it is shown by the father in his income.

7. Records to be kept for Gift received on the occasion of marriage

The taxpayer should prepare a list containing names, addresses, relationship with the taxpayer etc. of the persons giving the gifts on marriage. If the Assessing Officer wishes, the identity of the gift giver, his status and ability to give the gift will also have to be proved. If the taxpayer is unable to prove this, the Assessing Officer may reject the gift and consider it as income of the taxpayer.

8. Gifts by Relative

The definition of relative is given above and at the time receipt of Gift, the affidavit should be prepared and kept in record usability.

9. Effect of Gift 

There is no tax liability on the person who gives a gift. The person giving the gift has to deduct the gift amount from his capital.The receiver of the gift should increase increases his capital and has to pay tax, if he takes the gift contrary to the rules.Responsibility is casted on the receiver to prove the authenticity of the gift and to provide all such information to the Assessing Officer as required by him under the proviso of Income Tax Act.

10. Utilization of Gift for formation of Trust

A person can form a trust for his daughter and it should be made in the name of the minor daughter. The object of the trust should clause for taking care of the child’s education, his health and his marriage. The trust will not have to pay any tax on the amount you gift in creating this type of trust. The trust will have to pay tax on the future income that the trust will earn.

Trust can be formatted for future daughter-in-law and whether son is an adult or a minor will not have any impact on the trust.

11. Receipt of Gift by the Family trust

All gifts received by the family trust will be tax free. Apart from this, no tax will be levied on the person giving gift.

12. Taxability of Cross Gift

There is a provision in the Income Tax Act for cross gift arrangement and such transactions are considered to circumvent the law. The provision of clubbing of income will applicable and such transactions will be considered as taxable under the provisions of Section 64.

13. Gift of movable property and its taxability

As per the provision in Section 56(2)(x)  of the Income Tax Act, :-

  1. Amount received less than Rs. 50,000/- is not taxable and amount received more than this will be considered as taxable.
  2. As per Section 56(2) from April 1, 2017, according to which if movable property received without or for less consideration is worth more than Rs 50,000/- then it will be taxable.
  3. Similarly, if immovable property is received without or for less consideration, it will also be taxable.

14. Discover tax-exempt inheritance gifts! Learn how gifts from distant relatives through wills are not taxable under Section 56Gift after Death  

If a gift is received as per the will after his death from a relative who does not come under the definition of relative under the Income Tax Act, then still it completely exempt from tax under the provisions of Section 56. Thus, if distant relative has gifted any amount, it will not be taxable to you.

Hence, Get the lowdown on gifting and tax planning from the top chartered accountants in Udaipur

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