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| Gifting made unattractive |
| Amar Pandit / Mumbai Oct 04, 2009, 00:50 IST |
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You will have to pay income tax on items that cost over Rs 50,000 and have been given by a non-relative.
During the Dussehra-Diwali season, both corporates and individuals gift lavishly to colleagues and business partners.The Central Board of Direct Taxes has decided to come down heavily on this. From October 1, accepting any gift worth Rs. 50,000 or above in kind will attract tax. Till now, the gift tax was only applicable to gifts in cash and this was not applicable for gifts such as shares and securities, jewellery, archeological collections, property and works of art. However all such gifts in kind will now be taxed as income for the recipient, as per his tax slabs. For instance,. if you receive a car as a gift from your friend and the market value of that is Rs 3 lakh , you pay a tax of Rs 90,000 if in the highest tax bracket.
Any such person who receives any such gift on or after October 1 must pay the income tax due on the value of the gift and disclose the taxable value of such property in the return of income for assessment year 2010-11 and subsequent years.
The I-T department has also tried to plug loopholes in transferring real estate and jewellery for inadequate consideration. Not just gifts but even real estate and jewellery transactions without adequate consideration will come under the tax net. If the property in question is transferred to the non-relative for a throwaway price, tax will be imposed on the difference between the state government notified rate and the purchase price. Again, the recipient will have to pay tax. Similarly for jewellery or works of art from a non-relative for negligible or zero consideration, a fair market value will be arrived at to determine the tax liability in the hands of the recipient.
However, there are exemptions, too.The biggest one is that this is only applicable to gifts from non–relatives. This means gifts from relatives in kind will continue to be tax-exempt. Be careful to understand the definition of a relative and the six categories. A relative will include a spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or descendant and spouse of any of the relatives.
For example,. if you receive a gift from your brother-in-law’s spouse, there will be no gift tax. However, if a person who makes a gift does not fall within any of the above categories, then he would be considered a non-relative and gifts from such people would be exempt only up to Rs 50,000 in a financial year. Another point to note on this front is that since a Hindu Undivided Family can't have relatives, any gifts received by it in excess of Rs 50,000 in a year would be liable to full income tax.
Both cash and non-cash gifts on the occasion of a marriage, or under a will or by way of inheritance, in contemplation of the death of the donor, from any local authority or fund or trust will continue to be tax exempt. In case of marriage, there is no clarity on the timing of receipt of the gift. However, common sense would apply when it comes to such matters and receiving gifts on the day of marriage or a few days before or after is perfectly fine. One loophole that immediately comes up is what would happen if someone’s NRI friend decides to give a wedding gift but is unable to attend the marriage and gifts it after six months when they meet. Such matters will have to be tackled case by case.
When a gift is got by way of a Will, any amount received on the death of a person as a part of inheritance is fully exempt from income tax.
Another point to remember here is that any scholarship for education abroad or general payouts from a charitable trust would be completely exempt from income tax in the hands of the recipients without any limit, provided the trust or institution is registered under section 12AA of the Income Tax Act, 1961.
Be gift-tax smart during the festive season or otherwise, and make sure you understand the tax implications when receiving gifts.
The writer is director, My Financial Advisor
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