Gift Tax Rules 2017-2018 – Can we save and avoid Gift Tax?
Gifts are a symbol of love and affection. Parents give gift to Son or Daughter. Parent in-laws give gifts to daughter in-law or son in-laws during marriage. Many of us break their head whether gift money is taxable in India or not. However one should know what gifts are taxable and which gifts are non-taxable. Understanding Gift Tax Rules in 2017 would help you save gift tax and income tax. What are the Gift Tax Rules in 2017-2018? How to Save Income Tax on Gifts? In this article, let me review Gift Tax Rules and possible ways where you can save income tax legally. I have also given frequently asked questions about Gift Tax along with examples.
What is a Gift?
As per Income tax act, a gift is an asset received without any consideration by the donor. It can be in the form of cash or cheque receipts, movable property (like vehicle, securities, jewellery, antiques, paintings, sculptors etc.), or immovable property (like land, building, house or flat).
Classification of Gifts
For the purpose of Gift Tax, the following items received by individual may or may not be subject to gift tax:
a) Gift receipts of Rs. 50,000 or lower each year
If the value of any asset or money received as a gift is valued at Rs. 50,000 or below in a year, it is considered as tax-free gift.
b) Gift receipts of more than Rs.50,000 a year
If any asset or money received as a gift is above Rs. 50,000, the entire amount is taxable in the hands of receiver unless tax exemption rules apply to such gifts.
c) Movable property as gift without consideration
If any movable property is given as gift without consideration and the total movable property value is > Rs 50,000, then total movable property value is taxable.
d) Movable property as gift with consideration
If any movable property is given as gift with consideration and total movable property value minus consideration is > Rs 50,000, then total movable property value minus consideration is taxable.
e) Immovable property as gift without consideration
If any immovable property is given as gift without consideration and total stamp value is > Rs 50,000, then total stamp duty value is taxable.
f) Immovable property as gift with consideration
If any immovable property is given as gift with consideration and total stamp duty value minus consideration is > Rs 50,000, then total stamp duty value minus consideration is taxable.
What are the Gift tax exemption rules?
1) All the gifts received by an individual or his spouse at the time of marriage are completely exempted from gift tax. It does not matter whether the relative or acquainted is a close one or not. There is no limit on the amount too.
2) Any amount received as gift from close relatives is not taxable (gift tax blood relative). For this purpose, the definition of relatives covers the following relations:
- Parents, grandparents and great grand parents
- Your brothers and sisters and your spouse’s brother and sisters
- Brothers and sisters of your parents
- Your lineal descendants
- Lineal descendants of your spouse
Apart from these relatives, any gifts received from any other relative of the value of more than Rs.50,000 in a year is taxable as income in the hands of receiver.
3) Any gift received by an individual under certain specific conditions is completely exempted from gift tax:
By legal heirs or nominees under will or succession
By dependent of deceased employee from employer in the form of bonus, insurance, gratuity, or any sum received solely in recognition of services rendered by said employee.
Any sum received from local authorities or dignitaries in recognition or appreciation of notable deed
Any sum received from universities, educational institutions, or specified foundation or specified registered trust as a reward for academic or extra-curricular performance.
4) When an NRI parent, child or relative transfer cash or property as gift, it is not taxable in the hands of the resident recipient.
What are the guidelines for clubbing of gift income?
Cash or asset received by individual or his spouse is exempt from tax but any income earned from this gift in the form of interest or hose rent is taxable. For example- if father transfers a house to his son and rent is received, then the rental income will taxable.
Likewise, any cash gifted by the relatives (as defined by the law) is tax free but the interest income earned out of that gifted cash is taxable in the hands of receiver.
Exchanging gifts is quite a common scenario these days but most of the people are unaware of the tax implications of these gifts. This article is a perfect guide to make you aware how to benefit legally from gift tax exemptions.
Frequently Asked Questions on Gift Tax Rules 2017-2018
1) Is gift given by employers to employee is taxable?
Any gift given by employer to employee is considered as perquisite. Such gifts could be food coupons, gift vouchers, Award money etc., Any amount exceeding Rs 5,000 in a financial year would be taxable, else it is tax free.
2) Can we gift money to parents to save income tax?
If your parents are retired, you can gift money to them and they can invest in high return investment options and save income tax. Since they are non-earning members, clubbing provisions does not apply.
3) Can we give Gift to Spouse or children (non earning member) to save income Tax?
The amount gifted by you to your spouse or children does not attract tax to them. However any income generated by them would get clubbed with your income and you need pay income tax on the total income.
4) What about gift tax guidelines for gifts given during marriage?
All gifts given during marriage irrespective of “relative” status are exempted from gift tax. However, for movable or immovable properties, it is better to document with a gift deed. Ensure that such gift deed is near to your marriage date.
5) Is there any tax for gifts given by In-laws to daughter in-law or son-law?
Any gifts received during marriage or later point of time are tax free as they fall under “relative” definition.
6) Whether you have to pay tax on Gift received from Aunt (Mother own sister)?
Since your aunt fall under “relative” definition, the amount gifted from her to you is exempted from gift tax.
7) My Aunt Son/Daughter gifted money for more than Rs 50,000, is there any gift tax?
Only your aunt falls under “relative” definition. However, any gift given by her son or daughter to you is taxable.
8) Is there any income tax on gift received from Parents?
Your parents would fall under “relative” definition, any amount gifted by them to you is not taxable.
9) I am transferring immovable property to my own brother, would it attract gift tax?
Since your brother falls under “relative” category, Gift tax on immovable property In India to your brother would be zero as it is exempted from tax.
10) Would Gift tax applicable for Gifts given by Grand Parents to Grand Children?
Grand children / Grand parents are categorized as lineal descendants as per Gift Tax Rules and fall under “relative” category. Any gift given by Grand Parents to Grand children is exempted from Gift tax.
11) My father’s brother (e.g. Mr.Ramesh) or father’s brother son (Mr.Rajesh) want to gift me a property, will it attract Gift Tax?
We need to see this from other side. For Mr.Ramesh, you are “Brother’s son”. Hence any gift coming from him to you is taxable for you. However, Mr.Ramesh can transfer the property to your father (he would be brother for him and falls under “relative” terminology), hence your father need not pay any gift tax.
12) I purchased Flat and gifted to my wife and she gets rental income. What are tax implications?
Many of us think we are clever and gift flat to their wife to avoid tax on rental income. However since she does not have any other income, such income would be clubbed with your income and you need to pay income tax. One of the best ways is to apply for PAN card in her name and declare income and pay income tax as per income tax slab applicable based for her.
13) I have gifted money to my parents for their regular expenses, does it attract any tax?
If you gift any amount to your parents, it does not attract gift tax for them. However, if they are able to generate any income (e.g. if they invest in bank FD) over and above their basic income tax exemption limit, they need to pay income tax as they would fall under tax bracket.
14) I gave a gift to one of my relative who does not fall under “relative” definition, do I need to pay any Gift Tax?
If you are giving any gift to your relatives (who do not fall under the definition), you need not pay any income tax. However, the Gift tax needs to be paid by the receiver.
15) What is the gift tax rate in India for 2017-2018?
There is no separate gift tax rate in India. Such gift amount should be clubbed with your current income and you need to pay income tax on that.
15) What precautions should be taken to ensure that gifts received from relative definition are adhered as per Income Tax Law?
There are 2 things to be taken care. A) You should document with registered gift deed b) You need to show such gifts in Income Tax Return.
16) How to show or report Gifts received in Income Tax Return (ITR)?
Gifts from relatives / Occasion of marriage: Since these are exempted from income tax, we need not show them in income tax returns. However, high value gifts can always come under scrutiny from income tax authorities at later point of time. Best way is to register through gift deeds and show them under “Exempted income” in income tax returns.
Gifts from others: Other gifts which are taxable should be shown under “income from other source” and necessary income tax has to be paid based on income tax slab.
Cash gift received above Rs. 2 lakh can be subject to penalty u/s 269ST with effect from 1st April 2017, irrespective of the fact that the gift has been received from family member. Hence avoid any cash gifts and go through cheque or transfer to bank account.
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Gift Tax Rules 2017-2018 – Can we save and avoid Gift Tax