Taxation of Gifts

Tax Implications of Gifts

Gift Tax Act, 1958 has been repealed with effect from 1st October, 1998 and as such, Gift Tax is not chargeable on any gifts made after that date.

With regard to gifts of foreign exchange made by NRls to their relatives in India, it should be noted that Gifts made by an NRI  / PIO to his or her spouse, minor children or son’s wife will involve clubbing of income with respect to the income generated from those gifts,  in the hands of the donor-NRI / PIO.

These clubbing provisions will apply, in case of gift to spouse or son’s wife in India, only to the first-stage of income from the original gift. Second-stage income arising from investment of the income from the original gift is not clubbed and this will constitute the separate income of the donee. The income of minor children, from any source (including income from gifts from parents) is clubbed with the income of the parent whose total chargeable income is greater.

Other matters to be noted regarding gifts are:

All gifts received by residents from NRls / PlOs may be subject to the tax authorities requiring the recipient to provide evidence as regards the identity and financial capacity of the donor and genuineness of the gift. No approval is necessary for the resident donee to hold gifted immovable property outside India provided the said property is gifted by a person resident outside India. General permission is granted by RBI for the resident donees to hold foreign moveable properties such as shares and securities gifted by NRI / PIO donors. The Income Tax Act provides that if any sum of money exceeding Rs.25,000 received without consideration (i.e. by way of gift) by an individual from any person (other than relative), the whole of such sum will be chargeable to income-tax in the hands of the recipient (i.e., donee). However, the above provisions will not apply to any sum of money (gift) received:

  1. from any relative; or
  2. on the occasion of the marriage of the individual; or
  3. under a will or by way of inheritance; or
  4. in contemplation of death of the payer.

The term “Relative” is defined as:

  1. spouse of the individual;
  2. brother or sister of the individual;
  3. brother or sister of the spouse of the individual;
  4. brother or sister of either of the parents of the individual;
  5. any lineal ascendant or descendant of the individual;
  6. any lineal ascendant or descendant of the spouse of the individual; and
  7. spouse of the person referred to in (2) to (6).

Scope of Receipts

Thus, any receipt without consideration may be considered as income. Similar receipts by any person (such as a partnership firm, a company, and Association of Persons AOP etc.), other than an individual or a Hindu Undivided Family, would not constitute income in its hands.

Similarly, any receipt in India by a non-resident of the nature discussed above would be considered as income in his hands. Gifts on occasion other than marriage, for example, birthday, marriage anniversary and other social occasions, religious ceremonies etc., would be taxable as income. Gifts received on the occasion of the marriage of the individual, irrespective of any limit, (but within reasonable limits) would not be considered as income and thus not taxable.

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