Gifts are something that are given voluntarily without expecting payment in return, to show favour towards someone, honour an occasion, or make a gesture of assistance. In India, one of the most common modes of transfer of property and money is by way of a gift. The Finance Act 2004 introduced section 56(2)(v) for taxing gifts in the hands of the recipient. Accordingly, today gifts received by an individual or Hindu Undivided Family (HUF) are taxed under the Income Tax Act.
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Gifts from Relatives
- Gifts from specified relatives are exempted, regardless of amount.
- For
this purpose, Relatives means
- Spouse of Individual
- Brother & Sister of Individual
- Brother & Sister of Spouse of Individual
- Brother & Sister of either of the parents of Individual
- Any Lineal ascendants or descendants of the individual
- Any Lineal ascendants or descendants of the spouse of the individual.
Basically if you gift you spouse any gift, the same will be exempt under Income Tax Provisions, no matter what the amount of the gift is.
Clubbing of income w.r.t gifts given to relatives
- As per section 64(1)(iv), if an individual transfers (directly or indirectly) his/her asset (other than house property) to his or her spouse otherwise than for adequate consideration, then income from such asset will be clubbed with the income of the individual (i.e., transferor).
- Even though the gift from a relative itself is exempt in the hands of the recipient, the income generated from the gift may be taxable under the clubbing of income provisions of the Income Tax Act.
- For example, if Mr A gifts Rs 20 lakh to his wife, the same would not be added to the income of his wife. However, if his wife creates an FD from the same and earns interest, the interest would be added to the income of the husband.
Let us refer to the examples below to understand these clubbing provisions:-
The clubbing provisions of section 64(1)(iv) are not applicable in the following situations:
- If the transfer of asset is for adequate consideration
- If the transfer of asset is in connection with an agreement to live apart
- If the asset is transferred before marriage, no income will be clubbed even after marriage, since the relation of husband and wife should exist both at the time of transfer of asset and at the time of accrual of income;
Gifting has always been seen as a way for people to express love and affection. With the increased focus on taxation, it becomes imperative to know its taxability, how to disclose it correctly, and maintain documents (gift deeds, property registration etc.) diligently