with tax free gift regime, cherish the joy of gifting

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Query 1]

I have recently read your column about tax law in India on gift. Kindly answer a few queries regarding the same:

  1. Do the cash gifts need to be notified in IT returns in the same FY/AY? Any Tax deduction provision in the gift?
  2. If yes, the minimum amount to be notified?
  3. Maximum amount that can be gifted by cheque & how much maximum allowed in cash?
  4. Minimum denomination of stamp paper that shall be used?
  5. Any precaution regarding date of stamp paper and date of gift deed in context to the date of cheque and date of encashment / cheque realization date?
  6. What would be the tax treatment of income generated from the amount gifted?

Your guidance on above aspects will be enlightening. [khannayeemahmed@gmail.com]

Opinion:

The regular flow of queries on gifts in the Tax Talk column reflects the love and affection we Indians cherish. Receiving gifts is a habit from our childhood and we still love those memories. Gifting remains a symbol of love and care in India & all over. The tradition of gifting in marriages, anniversaries, birthdays or small occasion of bonding together will remain forever. There is no gift tax in India. Make gifts to your loved ones but do remember provisions of income tax as the onus will be on the receiver. So, the donor is not liable to tax for any gifts made by him either in cash or in kind. He can distribute immovable and movable property as gift during his lifetime. However, recipient needs to be cautious about the tax implication while receiving the gift & also about the mode of receiving the gift.

 

Slight Background:

Gifts Tax Act was introduced in India for the first time in 1958 as a measure to control money laundering. But this tax was abolished in 1998. Realizing the misuse, it was reintroduced again in 2004 in refined format thereby making “Gift” a taxable event under head “Income From Other Sources“ except the gift received:

  1. from a “Relative”
  2. on the occasion of the marriage of an Individual
  3. under a will or by way of inheritance
  4. in contemplation of death of the payer
  5. from a certain specified local authority/trust.

[To know the broader meaning of “Relative”, readers may please refer earlier tax talk dated 08.12.2014 & 15.12.2014].

Coming to your query, it may be noted that

  1. There is no specific requirement to report the gift (whether in cash or kind) in the Income tax return in the same year or in subsequent years. Irrespective of the amount, the transactions is not required to be notified to the income tax department. No deduction of tax at source (TDS) or whatsoever is there while gifting the amount. The gift transaction is outside the TDS basket. Individual taxpayer can incorporate the same in his/her personal balance sheet.
  2. There is no restriction or ceiling while receiving the gift from the relatives. However, please note that the recipient will not be taxed on the gift amount only if it is received in the situation as elaborated in (a) to (e) above. Tax authorities may examine the credit worthiness of the donor to ensure that the gift received is genuine or not.
  3. Documentation of gift:
    a] Stamp duty and registration charges are payable on gift deeds, and are different across states. The amount of stamp duty further depends on the relationship between the donor and the donee.
    b] In India, registration is not mandatory for gift of moveable property like gift of Jewellery/ ornaments, gift in cash/cheque, etc. However, for Gift of immoveable property, Registration is compulsory under the Registration Act.
    c] For the purpose of Income Tax Act-1961, gift of a moveable property can be done by executing the gift deed simply on a plain paper or on a stamp paper of just Rs. 100/-.
  4. It is recommended to keep proper documents for all the gifts received, so that in case of any scrutiny by tax officials, taxpayer can present the details. It may be noted that onus to prove the genuineness of the gift is on the receiver only.
  5. Income from the amount/property gifted would be taxable in the hands of the receiver/donee only, except in the case of gift received by
    a] Daughter in law from her Mother in law or father in law
    b] Gift received from spouse
    c] Gift received by Minor.
    In the case of (a) & (b), income from gifted amount/property would be includible with the income of the donor only due to applicability of clubbing provision. In the case of (c), income would be clubbed with the income of the parent.

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