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Tax Tip - Tell me "Will a gift to or from my parents be taxable?"

What are the tax implications of giving a gift to my parents?

Any gift in kind or cash is tax free in the hands of your parents and does not lead to any tax liability for you either.

What if my parents give me or my children a gift, is that taxable?

Again, this is tax free in your or your children's hands because the gift is coming from a relative with whom you have a blood relationship.

So tell me when are the gift tax free and from which donors?

The above rule does not apply to gifts received from following persons and on the following occasions:

• Any relative
• On occasion of the marriage of the individual
• Under a Will or by way of inheritance
• In contemplation of death of the payer
• Any local authority, trust or university

Who all are considered as my relative?

A relative is:

1. Spouse of the individual
2. Brother or sister of the individual or of the Spouse or of either set of parents
3. Lineal ascendants or descendants of individual or of spouse
4. Spouse of person referred to in (1) and (2) above

When is a gift taxable?

Any sum of money which exceeds Rs.50,000 and is received as gift, (i.e., without consideration) by an individual or a Hindu Undivided Family from a donor other than those listed above, the whole of this sum shall be taxable.

Does this mean that nothing shall be taxable if the gift amount is up to Rs.50,000?

Yes! Gifts received up to Rs.50,000 are not be taxable. Further the above limit of Rs.50,000 is applicable to aggregate gifts received by an individual from various sources.

Lets take an example. Ganesh received a gift of Rs.25,000 from his friend Amit and another Rs.26000 from his friend Raj. Since the aggregate value of gift received exceeds Rs.50,000 the entire amount of Rs.51,000 shall be taxable.

However, if Amit and Raj were Ganesh' relatives, then these gifts would be tax free in Ganesh's hands.

What about the taxability of gifts in kind?

Gift in kind or gift of immovable properly are not covered and are exempt without limit. A gift in kind does not include monetary instruments such as NSC, FD's, cheque etc., and gifts thereof are taxable.

What are the tax benefits for a gift to a spouse or fiance?

If you make a gift in kind or cash to your spouse then it is not taxable in their hands. However, any income generated by the gift in kind or cash shall be treated as your income.

What if you give a gift to your fiance? The good news is that if you make a gift in kind to your fiance, then there is no tax implication. However, if your gift amount exceeds Rs.50,000, then the entire amount shall be added to the income of your fiance.

What if I transfer my assets to my spouse or fiance, does that create a tax issue?

If you transfer an asset, for example a house property, to your spouse, then any income accruing to your spouse from this asset shall be clubbed to your income and taxed in your hands.

But if you transfer the same house property to your fiance, and were to get married soon after the transfer, then even after your marriage any income accruing on this asset shall not be taxed as your income. This is because the marital relationship as husband and wife did not exist at the time of transfer of the asset.

Is there any thing else to be taken care of while making a gift?

While receiving a gift it is always in the interest of the donee to get a gift deed signed by the donor. This might be required to justify gift receipts in the event of future issues raised by the tax authorities.

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Comments

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smita said : 19/02/2010	I have few questions, please answer them. 1. I am planning to get married in April this year, so, any cash less than rs.50,000 that I will receive from my fiance wont be taxable for him and me as well. Note: He is a business owner of sole prop. firm and I currently work in this firm as an employee. 2. The amount which he will gift to me will be deducted from profits of the firm or will it still be considered a profit ? 3. In last few years, I have taken around 70k advance salary in total . sometimes 30k, sometimes 45k. We are about file income tax for financial year 2008-2009 in next few weeks. Can I show that money as a gift or this law of gifting to fiance is formed later on. 4. any other tax suggestions that you would like to give. P.S note, that we want to have a good P
Sumit said : 24/02/2009	The information is really helpful