“A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform.” – Russell B. Long
The Income Tax Act 1961 of India contains a total of 23 chapters and 298 sections. Today, we talk about section 56 of this act, which discusses gift provisions and their tax implications. This section provides us with several favors. By virtue of this section, Money and gifts received by an individual taxpayer on the occasion of his/her marriage are exempt from income tax doesn’t matter whether clothes are gifted or a whole building. A pretty big advantage, isn’t it? But as we know, every coin has two sides, let’s talk about the dowry system in India.
The dowry system has had its roots in India for hundreds of years where cash and gifts are given by the bride’s family to the groom and his family for getting married, becoming the only ethical way to get married now. It is a social evil due to which a beautiful institution like marriage has merely become a business deal. In spite of putting a complete ban on dowry under The Dowry Prohibition Act of 1961, 95% of marriages include dowry. 20 deaths happen every day in India because of dowry, especially in states like UP and Bihar.
So, don’t you think that this favored gift provision can be one of the reasons which indirectly promotes dowry?
Section 56 provides us with another favor where gifts received by a taxpayer from his/her relatives are completely exempt irrespective of any occasion. Another huge advantage, right? But you know, a few months back there was a case in Allahabad High Court where a woman commits suicide after various cases against her, being subjected to harassment at her matrimonial home as she was constantly taunted that marriage was performed for very cheap, further it was made clear to the deceased that unless the amount asked for is fulfilled, it would be difficult for her to live in matrimonial home peacefully. Extremely cruel, right? Sadly, this is not only one case; this is the story of every second household in India.
All these incidents force us to give a second thought, whether these gift provisions are an advantage or a curse to the nation and its citizens. Don’t you think that these favored gift provisions are creating a lot of problems for many people in India? I believe there should be some sort of threshold limit on gift provisions stated above and heavy tax implications if these limits are crossed. Maybe after a small change, this noxious practice of dowry and harassment can be reduced to some extent.
Author Bio
Sir,
Had the gift been received prior to the wedding, exemption in section 56 would not have been applicable as on the date of gift, it was not from parents of spouse.
What about pre-nuptial contracts? How the section is applied?
Also, if the section had used the term gift, then amount would have been taxed. Because IT Act does not define the term gift. Under Contract Act, gift is when the consideration is love and affection. But here no love and affection is present!!
Sir, primarily, a gift is defined under IT Act, as the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth. There is no threshold limit on gifts received from relatives and gifts received on marriage.
Also, I don’t know if you have noticed or not but many times in pre-marriage ceremonies, gifts are just shown and later on handed over to the bride or the groom on the day of marriage which makes the whole transaction exempt.
And as you have stated about pre-nuptial agreements, a pre-nuptial agreement is just for the security of the bride and groom in case their marriage doesn’t work in the future. It is just a statement that states the ownership of the EXISTING assets and no new assets or gifts are acquired under that agreement.
Thank you for reading my article.
the author has looked into the provision from dowry point of view only. At the time of marriage, gifts are also received by brides from.their in laws, which other wise attracts clubbing provisions. otherwise also, depending upon the status of the family and friends, gifts are also received by brides, which are exempt.
Sir, first of all, I haven’t looked at gift provisions only from the dowry’s point of view. I know that the concept of tax is much broader than that. A gift is a token of love and respect we give our dear ones with the utmost affection. Whether it is an employer-employee relationship or a brother-sister relationship, gifts are given by everyone but I just want to say that the exemption of marriage gifts somehow indirectly promotes dowry. I am not saying this is the sole reason for the dowry practice but I am saying that it can be ‘ONE OF THE REASONS’ of dowry promotion and I am also not saying that the exemption on marriage gifts should be completely removed, rather it should be restricted to some kind of threshold limit.
Also, sir, I would like to request you to kindly check your facts that gifts received by a girl from her in-laws are also exempt under IT ACT.
And thank you for taking out the time to read my article and sharing your views.