Jigar M. Patel
International Tax Attorney
Basic Exemption where Gift exceeds Rs. 50,000?
Case Study-1: Mr. R receives a gift of Rs. 80,000 from his friend. Section 56(2)(x) provides that in case of a gift of any sum of money exceeding Rs. 50,000, the whole of such sum shall be treated as income. Accordingly, in this case, Rs. 80,000 and not Rs. 30,000 will be liable to tax as income.
Multiple Gifts below Rs. 50,000 whether Taxable?
Case Study-2: On his birthday, Mr. A receives 5 gift cheques of Rs. 40,000 each, from five different friends. Can he contend that since no single gift exceeds Rs. 50,000, the aggregate amount of the five gifts being Rs. 2,00,000 is not liable to tax? Section 56(2)(x) provides that where any person receives from any person or persons any sum of money, without consideration, the aggregate value of which exceeds Rs. 50,000, the whole of the aggregate value of such sum shall be treated as income. The terminology ‘aggregate value’ and ‘from any person or persons’ under the above provision, makes all multiple gifts, received from more than one person, also taxable. Rs. 2,00,000 will accordingly be liable to tax as income in the hands of Mr. A.
Gifts to an HUF from non-members!
Case Study-3: Mr. P is desirous of gifting a cheque of Rs. 25 lakhs to the HUF of his son, thinking that his son’s HUF will not attract any tax, in view of the father-son relationship. However, this gift needs a word of caution. Gifts to an HUF from an individual, who is a member of such HUF, can be claimed exempt. However, in the instant case since the gift is made to the son’s HUF, of which the father is not a member, this gift would be liable to be taxed as income in the hands of the HUF of his son.
Taxability of Money received under Will!
Case Study-4: If on the facts of the above Case Study-3, the HUF of the son receives the money under the Will of his father Mr. P, the same would be covered within the prescribed exclusions under Section 56(2) and hence not treated as taxable income of the HUF.
Wedding Gifts fully tax exempt!
Case Study-5: Ms. S receives cash gifts (Chanlla money) of Rs. 11 lakhs from both friends and relatives on the occasion of her wedding. Gifts received on the occasion of marriage being fully exempt under Section 56(2), there will be no tax liability in respect of the same.
Creating Tax Free Corpus for a Trust!
Case Study-6: Mr. T is desirous of setting apart a sum of Rs. 50 lakhs for the benefit of his family members. However, he does not wish to gift them any amount in their individual hands. In this case, he can plan to set up a Private Discretionary Family Trust making his family members the beneficiaries of the same and settle the sum of Rs. 50 lakhs as Corpus of the Trust. Since the gift is given by Mr. T to a Trust, established solely for the benefit of his family members who are covered within the meaning of the term relative, no liability to tax would be attracted.
