CA Preksha Choraria
Any receipt without consideration or receipt with inadequate consideration from relatives (as defined under Income Tax Act) is not taxable. However, certain receipt without consideration or receipt with inadequate consideration even from non-relatives is not taxable. This can be very effectively used as a tool for tax planning.
Here, receipt without consideration or receipt with inadequate consideration includes receipt of cash, movable and immovable property. As per the Explanation provided u/s 56(2)(vii), Property means the following Capital Asset (as defined u/s 2(14)) of the assessee namely:-
a. immovable property being land or building or both;
b. shares and securities;
c. jewellery;
d. archaeological collections;
e. drawings;
f. paintings;
g. sculptures;
h. any work of art;[or]
i. bullion
Thus, receipt of above Capital Asset by Individual or HUF as gift will attract Income Tax u/s 56(2)(vii).
Gift from relatives is not at all taxable under Income Tax Act,1961 but in following cases gift from Non-Relatives is also not taxable:-
1. Gift in cash(includes cheque and draft) from Non-relatives :-
In country like India, where we celebrate festivals almost every week, family function almost every month on occasion of birthdays, anniversaries etc., receipt of cash from non-relatives on these occasion is very common. Aggregate cash gift received in Previous Year (as defined u/s3 of Income Tax Act) from non-relatives will not be taxable if the amount does not exceed Rs.50,000/-.
E.g.
| Cash gifts from- | Case-A | Case-B |
| Mr. Akbar | 10,000 | 10,000 |
| Mr. Birbal | 20,000 | 20,000 |
| Mr. Tansen | 20,000 | 20,001 |
| Total receipts during the Previous Year | 50,000 | 50,001 |
| Taxability | Not Taxable | Fully Taxable |
Thus, even a single rupee received in excess of Rs.50,000 will make the whole amount taxable.
2. Gift in the form of Movable Property without consideration from Non-relatives :-
Movable Property received by Individual or HUF from anybody (non-relatives) without consideration, will not be taxable if aggregate of Fair Market Value of property received in Previous Year does not exceed Rs.50,000.
E.g.
| Property received from- | Type of Property | Case-A | Case-B |
| Mr. Amar | Shares | 25,000 | 25,000 |
| Mr. Akbar | Gold | 15,000 | 15,000 |
| Mr. Anthony | Paintings | 10,000 | 11,000 |
| Total receipts during the Previous Year | 50,000 | 51,000 | |
| Taxability | Not Taxable | Fully Taxable |
3. Gift in the form of Movable Property for inadequate consideration from Non-relatives :-
Movable Property received by Individual or HUF from anybody (non-relatives) for inadequate consideration, will not be taxable if aggregate of the difference between Fair Market Value of property received in the Previous Year and Consideration actually paid by the recipient in the Previous Year does not exceed Rs.50,000.
E.g.
| Property received from- | Type of Property | Fair Market Value (Rs.)
(A) |
Consideration actually paid by the recipient (Rs.) (B) | Difference (Rs.)
(A-B) |
| Mr. Ashok | Shares | 40,001 | 1 | 40,000 |
| Mr. Chanakya | Gold | 10,100 | 100 | 10,000 |
| Total receipts during the Previous Year | 50,000 | |||
| Taxability | Not Taxable |
4. Gift on occasion of marriage:-
On occasion of marriage an Individual can receive gifts of any amount from anybody i.e. there is no limit on the amount of gift received. E.g. Mr. Rahul close friend of Miss Sonia gifts Miss Sonia on her wedding flat worth Rs.25,00,000. This transaction is not at all taxable, as gift, in the hands of Sonia. Further, Mrs. Sonia gets divorced and remarries Mr.Rajeev, Mr.Rahul gifts her this time Gold worth Rs.25,00,000. Again this transaction is also not taxable in the hands of Miss Sonia as gifts received on re-marriage (after getting legally separated from former husband) are also not taxable. Thus, marriages can be said to be the best tool for tax planning!!!!
5. Gift by will/Gift on contemplation of death of payer:-
Any property or cash received by will or on contemplation of death of payer is not taxable.
6. Gift of property other than Capital Assets:-
Suppose an individual or HUF receives following assets as gift:-
a. Mobile Phone
b. Agricultural land
c. Wrist Watch
d. Car
e. ‘Khandarh’- Building in dilapidated condition etc. (Baladin v. Lakahan Singh AIR 1927 All.214)
The above gifts from non-relatives will not be taxable as the same are not covered in the definition of Capital Asset. E.g. Mr. Narendra provides professional service to clients. From one client he receives no consideration but gets a Phone worth Rs.60,000 as gift. Treating it as gift it will not be taxable.
Note:- Gift from employer to employee will be taxable under the head salary as perquisite.
*Benefit Derived out of the above provisions:
Thus, in a year an individual can receive minimum income/receipts of Rs.1,50,000 from non-relatives without paying tax. Joint families can get maximum benefits out of these provisions.
E.g. Mr. Vadra gets following gifts from Non-relatives.
| Cash gift from- | Amount(Rs.) |
| Mr. Amit | 15,000 |
| Mr. Chidambaram | 10,000 |
| Mr. Kapil | 10,000 |
| Miss Priyanka | 15,000 |
| Movable Property- | |
| Mr. Arvind | 12,000 |
| Mr.Sisodia | 12,000 |
| Mr.Kasab | 12,000 |
| Mr. Yakub | 14,000 |
| Movable Property-(Inadequate consideration) | |
| Mr. Nitish | 18,000 |
| Mr. Prabhu | 20,000 |
| Mr. Jitan | 12,000 |
| Total (Non-Taxable) | 1,50,000 |
Further, if Mr. Vadra has formed his HUF then HUF can again get minimum benefit of Rs.1,50,000. Thus, joint families can form many sub-HUF for tax planning purpose.
Excellent article.
With reference to point 4, “Gift on occasion of marriage”, I have a doubt. There is no limit on the sum of money received but is there a limit on the number of people we receive gifts from? For eg, if 1000 people gift Rs. 1000 each to the new couple, then will the entire sum of Rs. 10 lacs be exempt?
.
Also, the income tax amendment of 2006 (available here: cbec.gov.in/resources//htdocs-cbec/income.pdf) states – “on or after the first day of september 2004 but before the first day of april 2006”. So is this “exemption for gifts received by non-relatives for any amount” valid now?
Please do not suggest things like gifts from non relatives which may boomerang on the face of the tax payer.
While the assessing officer may accept the gifts received by you from non relatives but at the same time examine the number of occasions on which you have gifted to anyone else in the past.
There are several decided cases where the judicial authorities have taken the view that gift is a quid pro quo arrangement in the long run.
The probability of you and your family members having received substantial amounts of gifts year after year is very very low , unless it is also shown and established that the donee has also been gifting in the past.
As far as planning for gifts at the time of marriage is concerned since these are exempt but the assessing officer can always ask you for the details of expenses incurred on your marriage which will again boomerang as the chances of such person spending for marriage in accounted money is very very low.
Moreover what you are subtly suggesting is unethical.
What is exempt under Section 56(2)(vii) are genuine transactions of gifts and not the type of fabricated transactions suggested by you.
This is like asking your client to book purchases by paying them by cheque and then without receiving the goods.
Please be professional while advising such thing at least on a public forum like this.
It speaks volume about you as well as downgrades the reputation of the prestigious institution like ICAI of which we are member.
Nice presentation,it is informative that agricultural lands are not within ambitious.
I would like to know whether the author is suggesting tax evasion or tax planning in her article? Is it in accordance with the professional ethics and morals of a chartered accountant? Members may please enlightem me on this
Nice Tax planning ideas..
Hi Preksha
It was nice article.
But, practically it will not be that much feasible as total amount advise to be saved is Rs. 150K which is not very much attractive.
Also, incase of marriage gifts, even if you receive flat of Rs. 25lac, Income tax department is free to sought details of donor and definitely he will be then need to declare his source of income through which he has gifted this much of amount.
Lastly, re marriage can never be a tool of tax planning.
Thanks
Alok Sharma
Will An individual get benefit of taxation i.r.o. gifts received on re-marriage (after getting legally separated from former husband), if re-marriage again with former husband ?
good planning , particular person who is getting married
superb
I am planning to get married. Kindly give me the address of Mr Rahul.