Gifts and Taxability

What is a gift?
Gift means transfer by one person to another of an existing movable or immovable property made voluntarily and without consideration in cash or kind. As per the Income tax Act only gifts received by Individuals and HUF’s are taxable.

But is any gift received taxable? Gifts received from relatives are exempt fully. Gifts received from non-relatives above Rs. 50,000/- is taxable under the head Income from other sources. The amount of Rs. 50,000/- is in aggregate for a fiscal year i.e. total of all gifts received from non-relatives up to Rs. 50,000/- is exempt.

Now the question is if gifts received from relatives are exempt, can we make anyone our relative? No, the Income Tax act defines relatives. Of course all will agree that HUF’s cannot have relatives.

So for individuals who can be defined as relatives? As per the Income Tax act, the following persons will be termed as relatives:
• Spouse;
• Brother or sister or their spouses;
• Brother or sister of the spouse;
• Brother or sister of either of the parents or their spouses;
• Any lineal ascendant or descendant and
• Any lineal ascendant or descendant of the spouse

The second part was gifts received from others above Rs. 50,000/- is taxable, but we know the act, there are exceptions to everything. Let’s have a look at these exceptions:
• Marriage: Any gift received on the occasion of marriage is not taxable.
• Gift received under a Will or by way of inheritance;
• Gift in contemplation of death of the donor;
• Gift from any local authority;
• Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution specified by the act;
• Gift from any trust or institution, which is registered as a public charitable trust and
• Gifts received in kind

There is always a question that what happens if I receive gifts from NRI’s. As per the latest provisions, there is no separate distinction based on residential status. Only the rules stated above would apply.

Clubbing of Income
Gifts made by an Individual to his or her spouse, minor children or son's wife will involve clubbing of income in the hands of the Individual.

In the case of gifts to minor children the clubbing of income, will cease upon such children attaining the age of 18 years.

The clubbing provisions will apply, in case of gift to spouse or son's wife, only to the first-stage of income from the original gift. Second-stage income arising from investment of the income from the original gift is not clubbed and this will constitute the separate income of the receiver.

Generally, the income of minor children, from any source (including income from gifts from parents) is clubbed with the income of the parent whose total chargeable income is greater.