Gifting Money To Family: When It’s Tax-Free And When It Can Trigger Notices

Receiving gifts is exciting. Everyone loves to receive gifts from their family members and friends. Sometimes, however, gifts come with tax implications too. Earlier, we used to receive gifts only on important occasions, like on some special day or on someone’s wedding, etc. However, gifts are now also used as a tax-planning tool.

A large number of people believe that gifts received out of love and affection are exempt from tax. However, this isn’t the case. The Income Tax Act requires people to pay taxes on gifts, too, except when these gifts meet the specific requirements for exemption.

Prashant Bhojwani, Partner, Corporate Tax, Tax & Regulatory Advisory, BDO India, says that in India, gifting within families is a long‑standing tradition (on account of natural love and care). “Often, gifting is used to support financial needs for education, weddings, etc. The income-tax law, however, provides specific guidance on the tax treatment of gifts. For instance, gifts from relatives are not taxable, irrespective of the quantum,” he says.

Gifts received on the occasion of marriage are also exempt, irrespective of the quantum or relationship with the donor. It is, however, advisable to maintain the records of such gifts, such as the name of the donor, nature of the gift, value, mode of receipt, etc.

“Further, any gift received under a Will, or by way of inheritance, or in contemplation of the death of the payer or donor, would also be considered non-taxable,” says Bhojwani.

Importantly, the definition of a relative is to be read from the donor’s perspective. A relative means a husband, wife, brother, sister, lineal ascendants (maternal or paternal) or descendants. Lineal ascendants would imply parents, grandparents, etc, while descendants would cover children, grandchildren, etc.

Source: Outlook Money