Jigar M. Patel
International Tax Attorney
The scope of taxable income under the Income-tax Act is wide enough to include any sum received as gifts from one or more persons aggregating to more than Rs.50,000 in a financial year. The relevant provisions in this respect are contained u/s. 56 of the Income-tax Act.
In the above regard, certain exceptions have been carved out in respect of any sum of money received from any relative (as defined for purpose of this section) or on the occasion of the marriage of an individual, under a Will, by way of inheritance and a few other cases. Accordingly, such receipts will be exempt from tax, irrespective of the monetary limit of Rs.50,000.
Gifts from Specified Relatives Excluded
One of the important exceptions provided, in regard to taxing gifts as income, is in respect of sums received by any individual from his/her relative out of natural love and affection. For this purpose, the term ‘relative’ has been defined to include the individual’s spouse, brother or sister of the individual or spouse, brother or sister of either of the parents of the individual, any lineal ascendant or descendant of the individual or spouse and the spouse of any of the above-referred persons.
Thus, apart from the closest members of the immediate family such as parents, grandparents, children, grandchildren, brothers and sisters, even uncles, aunts and in-laws have been empowered to give tax free gifts without any monetary limits. However, it is important to note that cousins, nephews and nieces have been kept out of this list.
Gifts in Kind – Only Specified Gifts Taxable
As far as gifts in kind are concerned, only specified properties such as land and building, shares and securities, jewellery and ornaments, archaeological collections, bullion and works of art such as drawings, paintings, sculptures have been covered under the list of taxable gifts.
Interestingly, with only the properties as specified in the list above, being considered as liable to tax, a host of other valuables such as motor cars, electronics, furniture, air tickets etc. still remain out of the tax purview and as a recipient, you can thus enjoy the luxury of receiving any of these gifts, totally tax-free, even if you receive the same from any person not covered in the specified list of relatives.
Some Smart Thinking Out of the Box
Take the case of Mr. Amdavadi who is to celebrate his 50th birthday. His friends have joined together to raise a pool of Rs.5,00,000 for the purchase of a home theatre system of his choice. If they were to present him a cheque for the said amount, that would clearly be treated as taxable income in his hands. However, if they make the smart choice of collectively purchasing the home theatre system and gifting the same to him, Mr. Taxman would not be able to extract any pound of flesh from this smart planning.
