Tax Talk: Some gifts are safe from tax implications under I-T Act

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Published: August 11, 2015 12:05:00 AM

Gifts received in the form of cash, cheque or draft or even gold or property are taxable, if the total amount exceeds Rs 50,000 in a year.

If one receives a gift, there are some tax implications under the Income Tax Act, 1961. Gifts received in the form of cash, cheque or draft or even gold or property are taxable, if the total amount exceeds Rs 50,000 in a year.

The Act provides for the taxation of gifts received in the form of cash, cheque, draft or specified assets by an individual or Hindu Undivided Family. The Act also covers gifting of any immovable and specified movable properties. Gifting of immovable property like land and buildings, and movable property, such as jewellery, shares and securities, are chargeable to tax in the hands of the recipient.

However, there are some exceptions to the provision where one does not have to pay tax. Any amount of gift or property received from specified relatives is not taxable. The money or property received at the time of marriage or gifts given by way of a Will are exempt from tax. Relatives include spouse, parents, grandparents, children, brother and sister. However, one has to pay tax if income is generated from the property by way of rent or sold at a later stage by the person who had received the gift.

Considering that not all relatives are covered for exemption in gift tax, it is important to consider the nature of relation before claiming benefit under the exception. For instance, a gift received by a nephew from his uncle is not liable to be taxed according to the provisions of the Act, but a gift received by an uncle from his nephew is not covered under the exceptions. In the case of a Hindu Undivided Family (HUF), a relative is any member of the HUF.

A gift received by a HUF from its members is fully exempt from tax. Gifts received from any local authority like a state government and related establishments are exempt from tax. Moreover, even gifts received from any university, educational institutions, charitable institutions and other institutions referred under section 10 (23) are also exempt from tax in the hands of the receiver.

One must keep all the documentation of gifts received from relatives. This will be handy in case of any tax notice and will be easier to convince an assessing officer at the time of tax scrutiny. Also, rules related to clubbing of income would apply on certain instances which will increase the tax liability. In case one receives prize money in lottery, there are tax implications. Where the total income of a taxpayer includes any income by way of lotteries, crossword puzzles, etc, the amount will be taxable at a flat rate of 30%. Income from game shows, entertainment programmes on television or any other electronic mode will be included for the tax payment.

Moreover, the person who pays to another person any amount from lottery or crossword puzzle for any amount over Rs 10,000 will be required to deduct income tax at the time of payment at the current rate of 30%. Thus, the payer is also responsible to deduct tax at source before giving the reward.

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