What is gift tax? Who is liable to pay gift tax?

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Under the latest law, any gift received by a person in cash or kind which exceeds Rs 50,000 will be taxed as 'income from other sources' u/s 56 (2) of the Income Tax Act.

This is also applicable to movable or immovable property which has been purchased for inadequate or less amount payment. It is taxed under "income from other sources".

The value of any property, other than cash, transferred by way of gift shall, be its value as on the date on which the gift was made.

What is gift tax? Who is liable to pay gift tax?

Exemption in respect of certain gifts

  • Gifts received on occasion of the marriage
  • Under a will or by way of inheritance
  • In case of death of the payer
  • By way of bonus, gratuity or pension or to the dependents of a deceased employee 
  • Gifts from relatives on the occasion of marriage
  • NRI can gift their parents from NRE account

Gift received by a daughter-in-law from her parents-in-law is exempt from tax. While, son-in-law receiving gift from his parent-in-law is taxable.

Few examples to understand

Example: If Hari receives any gift from his friends, relatives or colleagues on his wedding it will not be taxed under Hari's hands. In case he inherits a movable/immovable property, it will also not be taxed.

Example 1: If Hari buys gift for his wife Deepa worth Rs 10 lakh, it is not taxable in the hands of Deepa.

Example 2: If Hari gifts a diamond necklace worth Rs 8 lakh to Deepa before wedding, then it will be taxed.( As relative clause will not be valid in this case)

Example 3: If Rahul cash gifts Hari an amount of Rs 30,000, it is also not taxable. Incase, if Rahul gifts another Rs 21,000 in the same financial year than the entire amount will be taxable in the hands of Hari.

Who are relatives under the income tax act:

(a) spouse of the Individual;
(b) brother or sister of the individual;
(c) brother or sister of the spouse of the individual;
(d) brother or sister of the either of the parents of the individual;
(e) any lineal ascendant or descendant of the individual;
(f) any lineal ascendant or descendant of the spouse of the individual;

The stringent rules adopted by the IT Act is to curb money laundering and for fair transaction of money.

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Read more about: nri, nre, income tax, gift tax
Story first published: Thursday, December 6, 2012, 9:50 [IST]
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