07 Jan, 2013 10:06 PM

On Gift Tax

Are you planning for a high value gifts to your loved ones? Have you received the same? Are you aware of the taxes applicable on gifts?

As per current tax laws, if an individual receives cash or non-cash gifts from persons other than blood relatives* in excess of Rs. 50,000 in a year, the whole of such gift received will be treated as the individual’s income and must be included under ‘Income from other sources’. If it does not exceed INR 50,000, it will not be treated as income.

But not all gifts are taxed. The specific assets for which gift tax is applicable are – cash, immovable property such as land & buildings, and movable property - shares & other securities (debt, derivative F&O), jewellery and bullion, art and antics (paintings, sculptures, etc.).

In the same way, gifts from the following sources are tax exempt irrespective of amount received as Gift:

Any blood/close relative*
Gifts received on your wedding
Gifts received by Inheritance or by Will
Gifts received from any local authority (state government and related establishments)
From any university, educational institutions, charitable institutions and other institutions referred under section 10 (23).

Note: Movable property will be considered at fair market value.

What You Should Know

Gifts made to spouse, minor children and daughter-in-law for inadequate consideration will be deemed income in the hands of the individual making the gift.
You can gift movable property to your dependent major children (above 18 years’ age) and the income earned from such gift will be taxed in their hands, thereby lowering your tax liability.
An NRI cannot open a PPF Account. However, he can gift money to his close relative in India and take advantage of the tax-free investment.

*A Close or blood relative would include any of the following:

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 individuals
Any lineal ascendant or descendant of spouse of the individuals
Spouse of the Brother / sister of individual or brother/ sister of spouse of individual

Gifting Minors & Realty

Even gifts received by minors will be brought within the purview of taxes by means of clubbing of income, incase of both parents having taxable income, it will be clubbed with the parent who is earning the highest. Real estate deals done for values lower than the rates fixed by state governments / local bodies will also be taxed. Here, the tax will be levied on the difference of amount between state government's rate and purchase price. The tax needs to be paid by the buyer of the property.