ust got a gift? That's good news.
Now, are you ready for the bad news? The government may want a share.
Gone are the days when gifts (in the form of money) were exempt from tax. Here is some information on gifts that you must be aware of:
1. Are gifts taxed?
It depends on who gives them and how much the gift is worth.
2. So, when is it taxed?
If you get a gift from a blood relative (lineal ascendant or descendant), it is exempt from tax, irrespective of the amount.
Gifts from anyone else will be taxed. That includes gifts from your best friend as well.
Only gifts above Rs 25,000 will be taxed, though. The taxman is not interested in lesser amounts.
Note: This is applicable on gifts received on or after September 1, 2004. Gifts received before this date are exempt from tax.
3. What if a person gets five different gifts all worth less than Rs 25,000?
Great. They will not be taxed since they are all worth less than Rs 25,000.
There are no restrictions on the number of gifts -- even if it is the same person giving you those gifts. The restriction is only on the amount.
4. Suppose the gift is given by someone abroad?
The above criteria [that gifts above Rs 25,000 and not from a blood relative will be taxed] still holds.
5. Is there a procedure to follow when you get a gift?
There is no specific procedure to receive a gift.
But do accept the gift in writing. You can do this via a gift deed.
6. What is a gift deed?
It is a legal document that states how much you received, from whom and when.
The person making the gift and the one receiving must both sign the gift deed.
Do get it registered with the related stamp duty.
It is safer to have gift deeds for high value gifts, ie gifts worth a few lakh. These gifts could be in cash or kind (say jewellery or property).
7. What if the gift is not cash?
Gift tax is only applicable when you receive a gift in cash or any other instrument like a demand draft or a cheque. It is also applicable if the person giving you the gift directly transfers the money to your account.
It is assumed that all these amounts are without any consideration. Consideration, according to the tax authorities, means getting something in return.
For instance, if you gift Rs 50,000 from someone who, in turn, gives you a piece of jewellery, this is referred to as a consideration. It will be treated as a purchase, not as a gift.
Any gifts received in kind, like shares or gold, are exempt from gift tax.
8. What if the gift is given to me for my wedding?
Only gifts received at marriages are exempt from tax, even if they are above Rs 25,000.
Got a gift for your anniversary? Tough luck. Anniversaries or birthdays do not qualify for this exemption!
9. How is a gift taxed?
There is no separate tax that is levied.
You will be taxed according to the income slab you fall under, after the gift is clubbed with your income.
When filing returns, you will note there are various heads of income: salary, income from house property, capital gains, profits and gains from business or profession and income from other sources.
A gift will fall under the head: Income from Other Sources.
Say you received Rs 30,000 as a gift on September 10, 2004. Let's also assume your other taxable income (say your salary) is Rs 100,000.
So in the financial year 2004-05, your total taxable income will be Rs 130,000. The tax you need to pay on this will be Rs 15,000 (plus education cess).
The gift is taxed in the year you receive it.
10. Should I declare a gift worth less than Rs 25,000?
No. You need not declare it when you file your income tax returns.
Cnergies is an end-to-end solution provider for Tax-Payroll-HR and provident fund.
