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Taxes can be tricky, even so in case of gifts. The entire amount in transactions between specified relatives such as spouses, brothers and sisters are tax-free and so are all the monetary gifts received in marriage. However, one has to pay tax in cases involving non-specified relatives. While an uncle can give a gift to nephew, the reverse transaction is not exempt from taxes
Financial transactions between relatives have their advantages, provided you take care that they are in keeping with the tax laws. According to the Income Tax Act, in the cases of financial transactions between specified relatives, the entire amount is totally tax-free at the hands of the recipient, if given as a gift.
“However any financial transaction received from other than specified relatives is taxable beyond Rs 50,000 in a year,” says Yogita Dand, certified financial planner. Bear in mind that if the total amount you receive is Rs 57,000, then the entire amount, i.e., Rs 57,000, will be charged to tax in your hands, and not just the additional amount of Rs 7,000.
Incidentally, the marriage of the individual is the only occasion when monetary gifts received them from other than specified relatives will not be charged to tax. Hence, monetary gifts received on occasions like birthdays, anniversaries, etc, will be charged to tax.
As per the current laws, gifts between specified relatives only enjoy the exemption benefit. “There is a dichotomy in the law in that while an uncle can give a gift to a nephew, the reverse transaction is not exempt from taxes,’’ points out T P Ostwal, chartered accountant and partner, T P Ostwal and Associates LLP. “The relation from only one side is considered, that of uncle to nephew. But the other relation of the nephew to uncle is not considered for exemption. This is illogical and the law needs to be amended,’’ adds Ostwal. Till then, Ostwal says they advise their clients not to enter into such transactions.
Gifts from Hindu Undivided Family (HUF) are also exempt following the ruling by the Rajkot tribunal in the case of Vineet Kumar Raghavjibhai Bhalodia versus Income Tax Officer.
The tax department initially claimed that the gift received from HUF by a member is not exempt. However, the Rajkot tribunal ruled that gifts received from ‘relative’, irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax and that the HUF is a group of relatives and therefore gift received from HUF is exempt from tax under Section 56 (2) (vi).
If you wish to avoid visits by the tax man, it would be advisable to take necessary precautions before you enter into a transaction. Sushil Jain - national head, financial planning & client connect, Bajaj Capital, advises employing an attorney for drafting legal records like appropriate deeds or similar instruments. “The attorney will determine such issues as to what form of document is appropriate for the transaction, who should sign that form, how the new owners will hold title of contract,’’ says Jain.
“One should disclose all such transactions whether they involve monetary consideration or not. It will help you not only in taxation purpose but also in estate planning,’’ says Jain.
“When a monetary consideration is involved, it is always advisable to show the transfer of any immovable or movable property as a sale and pay the tax on the same,’’ advises Dand.
“If there is no monetary consideration involved, it is better to gift the property by executing a gift deed and paying the necessary stamp duty on it,’’ says Dand. In the case of an immovable property that is gifted, the gift deed has to be registered with the sub-registrar of assurances, whereas it is not necessary to register a gift deed in case of movable property like jewellery.
Some states like Maharashtra have exempted stamp duty in case of property transfers between specified relatives. “However, it is still mandatory to execute an affidavit on stamp paper of Rs 500,’’ says Dand.
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