Monetary gifts & its taxation
Giving is an important trait to inculcate. It’s a way to show appreciation, to say thank you, or to show someone you care. Celebrations are incomplete without gifts. However, caution while you accept !!!
What are gifts
According to Income Tax Act, 1961, gifts can be classified as
1.Monitory gifts (Cash, Cheque, draft etc.) without consideration
2.Gift of specified movable property without consideration
3.Specified movable property reduced for inadequate consideration (at a price less than the fair market value)
4.Gift of specified immovable property without consideration
5.Specified immovable property reduced for inadequate consideration (at a price less than the fair market value)
Conditions to be satisfied for charging monetary gifts received to tax
1.Received without consideration
2.The aggregate value of such sum of money received during the year exceeds Rs. 50,000
Monetary gifts from outside India
If aggregate value of gifts received during the year exceeds INR 50,000, and gifts not covered under exceptions mentioned, then gifts whether received from India or abroad will be charged to tax
Value of monetary gifts
If value of money received exceeds INR 50,000, entire amount becomes taxable for the recipient. Lets understand with the help of an example. Mr P receives monetary gift for his wedding from two people.
From Mr.A – INR 25,000
From Mr.B – INR 75,000
Who can gift?
In case of the following cases, monetary gifts will not be charged to tax
Money received
1. From Relatives
2.On occasion of marriage of Individual
3.Under will or inheritance
4.in contemplation of death of the payer or donor.
5.From a Local Authority
6.From any fund, foundation, educational institution, trust or medical institution
7.From a trust or institution registered under Section 12AA or 12 AB
8.Share received as a consequences of demerger or amalgamation of a company
9.Share received as a consequences of business reorganization of a co-operative bank
Who is a relative?
Taxability is based on aggregate value & not individual gift basis
Lets try to understand with a help of an illustration.
Mr. Raja received INR 24,000 on 01.04.2021 & INR 17,000 on 20.11.2021. Since aggregate value is less than the prescribed limit of INR 50,000 (here, INR 41,000 (INR 24,000+INR 17,000), nothing will be charged to tax).
If, instead of INR 17,000, amount received was INR 27,000, entire amount of INR 51,000 becomes chargeable to tax as it exceeds the prescribed limit of INR 50,000
This means, even though value of individual gifts is less than INR 50,000, in aggregate it crosses the prescribed exemption limit.
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