Gift Taxability under Section 56 2(VII)
What is a Gift?
Any asset you receive from someone without giving anything in return to them (without consideration) is considered as a “gift” by under income tax laws. The following are gifts under the I-T Act, 1961:
Ø Money received in the form of cheque or cash
Ø Immovable property such as a house, land, building, etc.
Ø Movable property such as jewellery, paintings, shares, securities, etc.
In India for an individual and HUF Gift is a very common in Income tax term but to avoid the tax evader, Government has made some provision related to this concept but subject to the below provision you can make tax planning accordingly
Explanation to the Provision 56 2 (VII)
· If any Individual of HUF received any money >50,000 without any consideration complete amount would be taxable in hand of receiver under other sources income.
· If any Individual of HUF received any immovable property >50,000 without any consideration or less than the stamp duty value of property which is >50,000 excess to the received amount will be taxable in hand of receiver under other sources income.
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
e. from any local authority as defined in the Explanation to clause (20) of section 10; or
f. from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
g. from any trust or institution registered under section 12AA.
(I)spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) brother or sister of either of the parents of the individual; (v) any lineal ascendant or descendant of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; (vii) spouse of the person referred to in clauses (ii) to (vi);
A lineal descendant is a person who is in direct line to an ancestor: child, grandchild, great grandchild and so on. Similarly, a lineal ascendant could be parent, grandparent, and great-grandparent and so on. Hence gift from father, mother, brother, sister, father-in-law, mother-in-law, brother-in-law, sister-in-law, etc. will not attract any income tax. Grand parents can give tax free gifts. Avoid gifts from mother’s father/mother (Nana/Nani) as these are not tax free. There are debates on treating them as lineal ascendants. If you gift money or an asset to your daughter-in-law, income from that money or asset will be clubbed to your income.
When you give gift to someone, it is essential to back it up using gift deed. A gift deed is a legal document which is used to describe the transfer of gift from giver to receiver without any exchange of money.
Gift Deed should include the following-
i. Date and place where Gift Deed is made
ii. Details of the giver or donor (name, father’s name, date of birth, address)
iii. Details of the receiver or donee (name, father’s name, date of birth, address, relationship with donor)
iv. Relationship of receiver or donee with the giver or donor
v. Details of the property that is being gifted
vi. Signatures of donor and donee
vii. Details of two witnesses in whose presence the deed was executed
viii. Signatures of the witnesses
Note: Many state governments have levied stamp duty on Gift Deed. Please consider this aspect.
Hindu Law specifies the properties that can be transferred by way of Gift, which are:
Ø Self-acquired property under Mitakshara School of law.
Ø Joint or self-acquired property under Dayabhaga School of law.
Ø A Hindu may dispose of by gift his separate or self-acquired property, subject in certain cases to the claims for maintenance of those he is legally bound to maintain.
Ø A coparcener, may dispose of his coparcenary interest by gift subject to the claims of those who are entitled to be maintained by him.
Ø A father may by gift dispose of the whole of his property, whether ancestral or self-acquired, subject the claims of those he is entitled to be maintained by him.
Ø A female may dispose of her “stridhana” by gift or will, subject in certain cases to the consent of her husband
Ø A widow may in certain cases by gift dispose of a small portion of the property inherited by her from her husband, but she cannot do so by will
Ø Sole surviving coparcener can gift any or all ancestral property.
Ø Impartible property, unless prohibited by custom or tenure of alienation.
Ø A small portion of the property if a widow or father inherits that portion.
Ø The owner of an impartible estate may dispose of the estate by gift or will, unless there is a special custom prohibiting alienation or the tenure is of such a nature that it cannot be alienated
In a major judgment, the Supreme Court has ruled that a father can gift a reasonable portion of his ancestral immovable property to daughters at the time of their marriage or even long after their marriage. The question as to whether a particular gift was within reasonable limits or not has to be judged according to the status of the family at the time of making a gift, the extent of immovable property owned by the family and the extent of property gifts.
How Much Can a Spouse gift Tax-Free?
If you gift money to your wife, it will be tax-exempt only in her hands. You must still pay tax on the complete amount you gift your wife, as it comes under “taxable income” for you. You can indirectly save tax by giving a gift to your wife if she invests the money in a high return yielding investment. If she does not have any income, the return on this investment will not be taxed, as she falls under the exemption limit. In case your non-earning wife earns an income from the gift you give her, the income will be clubbed with your income for tax purposes. However, if she is an earning individual, she will be liable to pay tax on this income.
Gifting to Daughter In-Law: If you gift anything to your daughter-in-law, then Gift will be tax free but any income derived by her out of the gifted amount/ property will be clubbed in your hands.
Taxability of Gifts from Parent to Child: As any income (other than the manual work done by him; or through any activity involving application of his skill, talent or specialised knowledge and experience derived by minor child) gets clubbed in the hands of the parent having higher taxable income. Therefore, gifting the amount to minor children may not help the tax situation
Gift received On occasion of the marriage of the individual: Gift received by any person (without limit) on the occasion of the marriage is tax free in the hand of individual (recipient).
Gift received under a will or by way of inheritance: Any sum of money or any property is received under a will or by way of inheritance it is totally exempt from Gift Tax.
In contemplation of death of the payer: Any sum of money or any property is received in contemplation of death is also exempt from gift tax. A gift received in contemplation of death means when men, who is ill and expects to die shortly because of his illness, give his movable property possession to another to keep as a gift in case if he will die because of that illness. Such a gift may be resumed by the giver; and shall not take effect if he recovers from the illness during which it was made; nor if he survives the person to whom it was made.
Stamp duty on Gift Deed in blood relation
Stamp duty of recommended value has to be paid for registration of Gift Deed. The Stamp duty charges differ from state to state and also based on gender. Few states offer a concession in stamp duty if the property is gifted to family members.
The gifts you receive will be taxed at the normal income tax slab rate applicable to you. The following table contains the details of the type of gifts, the minimum value of gifts at which tax is applicable, and the amount which will be chargeable to tax:
Sr No Types of Gift Conditions for Taxability Amount Taxable
1 Money without consideration Sum > Rs 50,000 Total amount of gift received
2 Immovable property without consideration
Stamp duty value > Rs 50,000 Stamp duty value of the property
3 Immovable property with inadequate consideration
Stamp duty value exceeds consideration amount by > Rs 50,000
Stamp duty value less consideration
4 Movable property without consideration
Fair market value > Rs 50,000 Fair market value of the property
5 Movable property with inadequate consideration
Fair market value exceeds consideration amount by > Rs 50,000
Fair market value less consideration
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