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Taxes and Valentine's Day

Did you know that there are new rules for the taxation of gifts? This Valentine's Day refresh your understanding of the impact of taxes on your love life.

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I want to give a gift to my fiancee or girlfriend/boyfriend, will it be taxable?

The good news is that any gift you give will not be taxable in your hands. The bad news is that under the new laws a gift in kind and cash to your fiancee, girlfriend or boyfriend could be added to their income, and accordingly be taxable in their hands.

What is the new rule and which types of gifts are taxable?

Previously, only cash gifts of more than Rs. 50,000 were taxable. But, if you gave a gift in kind, that was tax free in the hands of the recipient. However, under the new rules, the ambit of what and how much is taxable has been changed.

Under the new rules, the following are exempt:

• Cash gift of up to Rs. 50,000
• Gift of immovable property up to Rs. 50,000 (such as land or real estate)
• Gift of specified assets such as jewellery up to Rs. 50,000

If you give a gift in these above categories, above the exempt amount then the entire amount will be taxable in fiancee, girlfriend/boyfriend's hand.

Let's understand the new law with the help of an example. This Valentine's Day Shyam gifts his fiancee Radha the following:

• Cash Rs. 51,000
• Jewellery worth Rs. 51,000

Each of these gifts is above the exempt amount. The aggregate amount of gifts given is Rs. 1,02,000. This entire amount is taxable as "Income from Other Sources" for Shyam's fiancee Radha.

However, if Shyam restricts the gift amount to Rs. 50,000 for each of the above category of gifts, then nothing shall be taxable for Radha.

So if I give a gift to my Spouse will that be taxable?

No! The good news is that gifts to a spouse are not taxed at all, whether they are in cash or kind. The same holds true for gifts to your parents or siblings

However, any income accruing to your spouse from this gift shall be clubbed with your income and taxed in your hands.

So, what's your advice - should I get married?

Totally up to you and your intended partner, but being married is certainly more tax efficient!

OK, I'm getting married, will the gifts we receive at our wedding be taxable?

Any gifts received at the occasion of your marriage, whether in cash or in kind, are not taxable. There is no monetary limit attached to this exemption.

As a married couple how can we reduce our tax liability?

You can try out following to reduce the tax impact on your total income:

• Ask your employer to offer car lease in favour of your wife
  

  While negotiating your salary structure with your employer, ask for a car lease in favour of your wife, if she has no other sources of income. This will reduce your taxable salary by the lease amount.

  The lease rental will be taxable as your wife's income. She can claim car maintenance and running expenses against this rental income. For a non-working woman, once the relevant tax slab is applied for her, the tax liability can go down to virtually zero.

  In this way, as a family you can reduce your tax liability. And, you don't sacrifice on the use of a car.

• Co-own a house with your Spouse and claim separate deduction for interest payment.
  

  In case you intend to purchase a property this year and plan to get it financed through a bank, then buy it with your spouse as a Co-owner. By doing so you and your spouse are entitled to separate deductions on account of interest and principal repayment.

  For example, Sonia and Neeraj, a married couple, co-own a self-occupied apartment in the ratio of 40%: 60%. Both pay EMI towards the loan they have outstanding on this apartment. Both shall be entitled to interest deduction and principal deduction in their individual tax returns.

Comments

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Taqreez Ali said : 09/02/2010	Realy nice post and very useful.