CA Satish Sarda
Giving gifts to near and dear ones is very much prevalent in our Indian culture. Generally gifts are given to express love and affection. Sometimes we may also help the needy one by providing some monetary help. However, Gifts can also be good tax planning tools.
As per Income Tax Provisions the following income shall be chargeable to Income Tax under the head ‘’Income from other sources ‘’:
Where an individual or a Hindu undivided family receives, in any previous year, from any person or persons –
a) Any sum of money, without consideration ,the aggregate value of which exceeds Rs.50,000/-, the whole of the aggregate value of such sum;
b) Any immovable property –
i) without consideration , the stamp duty value of which exceeds Rs.50,000/-, the stamp duty value of such property;
ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/-, the difference between the stamp duty value of such property and the consideration received.
c) any property, other than immovable property,—
i) without consideration , the stamp duty value of which exceeds Rs.50,000/-, the stamp duty value of such property;
ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/-, the difference between the stamp duty value of such property and the consideration received.
Provided further that this clause shall not apply to any sum of money or any property received—
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer or donor, as the case may be;
Elaborating further regarding above mentioned provision please note that gifts received from following relatives (donors) are tax free for Donor as well as Donee.
List of Male Donors : Father, Brother, Son, Grand Son, Husband, Sister ‘s Husband (Jija), Wife’s Brother (Sala), Husband’s Brother (Dewar), Mother’s Brother (Mama), Mother’s Sister’s Husband (Mausa), Father’s Brother (Chacha/Tau), Father’s Sister’s Husband (Fufa), Grand Father (Dada,Nana), , Daughter‘s Husband (Jamai), Spouse’s Father (Sasur), Spouse Grand Father (Dada Sasur)
List of Female Donors : Mother, Sister, Daughter, Grand Daughter (Poti) Wife, Brother’s Wife (Bhabhi), Wife’s Sister (Sali), Husband’s Sister (Nanad), Mother’s Sister (Mausi) ,Wife’s Brother’s wife (Sala Heli), Father’s Brother’s Wife (Chachi or Tai), Father’s Sister (Bua), Grand Mother (Dadi,Nani) , Son’s Wife (Bahu or Putra Vadhu), Spouse’s Mother (Saas)
In general we can say any lineal ascendant or descendant of Individual or Spouse of Individual is a relative.
Keeping in mind the above provisions we can plan our gifts so as to reduce final tax liability.
Tax Planning through Gifts to Wife or Son’s Wife:
Though gift received from a Relative is Tax Free however Gifts given to Wife or Son’s wife attract clubbing provision. This means any income arising from investment of such gifted sums will be clubbed in the hands of Donor i.e. Husband or Father-In-Law, as the case may be.
So it is always better to invest the gifted amount in such investment options which are tax free. For example the amount can be invested in Listed Company Shares, PPF, ELSS Mutual Funds etc. As Long term Capital Gains earned on selling of these investments or any income accruing on these investments (like interest on PPF account) will be tax free so it will not increase the tax liability of Husband. And later wife can invest the earned income anywhere she likes and income on that investment will not be clubbed in Husband’s income.
Tax Planning through Gifts to Parents or Major Children:
If your income is taxable in 30% tax slab than you can plan gifts to your Parents who are not having taxable income or the income is taxable in lower tax brackets. For example you are having surplus funds of 50 lacks with you. You can gift 25 lacks to each of your parents. And suppose your parents invest these funds in bank FDR then each of them may get annual income of Rs.2,25,000/- (@9%) which will not be liable to any tax. If the same income is taxed in your hands the tax liability would have been Rs.1,35,000/- (@ 30% on 4,50,000/-). In this way you can save substantial amount of tax year after year.
Similarly if you have major Children who are yet to earn any income then money can be gifted to them. So that an additional exemption limit and benefit of lower taxation slab can be utilized.
Tax planning through Gifts on occasion of Marriage:
1) Gifts received on occasion of marriage of an Individual are tax free in the hands of Giver and receiver both ,
2) Clubbing provisions are not attracted
So this provision can be utilized to its utmost benefit.
Gifts valuing below Rs.50,000/- (in aggregate during a year)
Gifts of aggregate value upto Rs.50,000/- can be accepted from any one without attracting any tax liability.
Gifts under a WILL:
Gifts to any person under WILL are Tax Free.
Conclusion:
So Gifts can always be planned from a person in a higher tax bracket to a lower tax bracket or Nil Tax bracket. Please keep in mind that Gifts should be reasonable and justifiable.
It’s always better to prepare a Gift Deed for proper recording and valid proof of transaction. Duly incorporate therein the PAN and Address of the Donor, nature of Gift, Value of Gift, Reasons for Gifting etc.
And finally, in the dark clouds of taxation there are some silver linings, let us take benefit of same before they too disappear..!!!!
(Author is a Past Chairman-Nagpur Branch Of ICAI)
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I got retirement fund from central government. Can i give gift of say 25 lakhs to my divorcee daughter for her future prosoect and also parallelly reducing my income tax. Is this fishy or suspicious ? Amount recd to me is fm Govt officially.
pls help me to understand
my company is gifting me mobile worth 13k but they charging tax on it
can u pls help m if mobile phone is taxable or not?
Dear Sir,
Your article is very informative.
Kindly clarify my doubt that, I have received Rs.5.00 Lacs as gift from My Parents and invest the same, received interest of Rs.50000/- P.A
Here the tax treatment of Gift and Interest income in the hands of Whom?
To CA Shripal ji
1. Not taxable in cars and mobile. They do not qualify the definition of property
2. Not taxable. The word aggregate is not for immovable property. Further,the situation you stated won’t happen in practical life. It has very discrete chances.
what about the Nana & Nani under which clause they will come?
Gift from Nephew will be taxable.
Gift of Mobile,Car etc will be taxable if received from non-relative.
puttaraju Sir gift can be given only from our declared sources. Income tax can very well ask for the source of Gifts.
SIR, PLEASE CLARIFY THE QUERY –
A PERSON WANT TO INCLUDE THE NAMES OF WIFE & SON IN IMMOVABLE PROPERTY WHO DO NOT HAVE ANY INCOME. IF GIFT IS GIVEN TO WIFE & SON AND THEY RE-INVEST THAT AMOUNT IN SUCH IMMOVABLE PROPERTY – WHAT WILL BE THE TAXABLE LIABILITY AND HOW MUCH AMOUNT COULD BE GIFTED.
if the residential and agricultural property is gifted to
husband, wife, son, daughter, grandson, grand-daughter, wife of decesed son, the
amount of duty chargeable shall be rupees two hundred only.
Thanks for such a nice article sir.
YOU ARE SILENT REGARDING GIFT GIVEN BY HUF MEMBERS TO HUF.
Thank you for giving the highlights in such a simplified manner… Very interesting and knowledgeable.
Regards.
Hi Satish, i have read the gifts from blood relations can only be tax free and not all the gifts are tax free other than the exceptions mentioned by you hereinabove.
Pl clarify.
Thanks
Manish Jain
If every year I gift Rs. 49,000/- to my wife & the income arising from that gift will be clubbed in my hand ?
Clubbing provisions are applicable to wife & son’s wife only?
Please provide the gift deed format.
Thanks.
Sir thanks for this detailed info . I have One question can HUF Karta gifts money to one member of huf ? Would it attract any Tax liability in hands of huf or member.
Hi Satish, thanks for the info, please clarify the position in the following case, will be obliged to receive your reply in email:
Nephew, X husband’s sister son giving immovable property (Flat) worth INR 2Cr to wife of X husband. Donor is nephew and donee is mami.
Thanks,
Yeshwant Mehta
thanks for such elaborated and informative article
Sir,Kindly clarify the below queries :
1. Mobil set worth RS.85000/- received as gift./ Car worth RS.1000000/- received in received.Whether same is taxable in the hands of receipient.(Sir, as per defination of Movable property this items are not included)
2.Gift Received of 3 immovable properties from 3 different persons other than relative.Value of none of property exceedsd RS.50000/- but agreegate value of three properties crossed RS.50000/- what will be the tax treatment.
correction: #list of specified persons
When a gift is made to the list of specified list, it is exempt in their hands. But wont the taxmen be concerned about sources of funds of the person who made the gift?