In India, most of the people gift their near and dear ones as a part of traditional custom apart from showing affection and love. Gifts need not be given on a special occasion. In some of the case, gifts are even presented without any specific reason in such cases, it is better to be aware of the Income Tax guidelines to be on the safer side.
Let's understand if the gifts are indeed tax-free or taxable in India. As per the Income Tax Act of 1961, if the value of gift received is more than Rs 50,000, then such amount is taxable in nature in as income in the hands of the receiver. The gift can be in any of these following forms be it cash, movable or immovable property, jewellery and so on.
Gifts are tax-free in nature if the same is received from relatives. If a person receives a gift from any of these following individuals then he can claim the gift as tax-free:
• Brother or Sister of an individual
• Spouse of an individual
• Brother or Sister of either of the parents of the individual
• Brother of Sister of the spouse of the individual
• Any lineal ascendant or descendant of the spouse of the individual
• Any lineal ascendant or descendant of the individual
• Spouse of the persons referred to above
If an individual receives a gift during a marriage, then the same is tax-free in nature as per the Income Tax Act of 1961.
If an individual receives a gift from relatives when there is no occasion, then how will it be treated under the Income Tax Act of 1961?
Recently, the Indore Tax Tribunal examined a case and gave a verdict relating to the case wherein an individual received a gift from relatives in the case of Geeta Dubey vs Income -Tax Officer.
In this case, Geeta Dubey received a gift from her father to the tune of Rs 50,000 and also a separate gift of Rs 50,000 from her sister-in-law. The tribunal stated that Section 56 of the Income Tax Act 1961 provides a cap of Rs 50,000 on gifts which are received from non-relatives and if the gift amount exceeds Rs 50,000 then the same will be taxable under the head income from other sources. The receipt of the gift was examined by the assessing officer.
During the course of assessment, Dubey was able to provide identification for establishing the fact that both the persons who gifted her were her relatives and the amount was received through a proper banking channel. The officer accepted that the individuals who gifted Geeta were indeed her relatives as per the Section 56 of the Income Tax Act 1961.
The assessing officer contended that the gifts will be subject to income tax as the occasion for gifting could not be explained by Geeta, the contention was upheld by the Commissioner of Income Tax (Appeals) too.
When the interpretation came up for consideration before the tribunal. The tribunal noted that there is no such cap on gifts received from a relative nor there was a mention about the necessary condition to mention the occasion for receiving any sum in the form of a gift from a relative. The tribunal ruled that as the identity of the donors has been established and since they qualified as relatives for the taxpayer to claim for an exemption, the need to provide an explanation regarding occasion for receiving a gift is not mandatory. Thus the order was passed in favour of Geeta Dubey.