In India, it is common for families to exchange gifts upon marriage. This article deals with the tax implications of such gifts received.
General rules on taxation of gifts in India
Before the Gift Tax Act was repealed in 1998, the giver (the donor) had to pay gift tax on the value of the gift above Rs. 30,000 / -. After the cancellation, neither the recipient nor the donor became taxable. This loophole has been grossly misused, forcing the government to make arrangements to tax the gifts in the hands of the recipient if the sum of all gifts exceeded a certain threshold during a year. Currently this threshold is fifty thousand rupees. It is the total value of all gifts received during the year, rather than the value of an individual gift, that should be taken into account when determining the taxation of gifts.
Special provisions for wedding gifts
Although the legislature provides for the taxation of gifts in the hands of the recipient, there are certain exceptions. Marriage gifts are one of the exceptions provided by law. In India we have a tradition that both relatives and the newlyweds receive gifts on the occasion of the marriage. Are all of these gifts covered by the marriage exemption and therefore tax-free? The answer is simply no. Only the married couple enjoy the exception and not all relatives. The couple’s gifts are completely tax-free with no upper limit. These gifts don’t necessarily have to come from relatives just to enjoy this release.
Therefore, any gifts the bride and groom receives, regardless of value, are tax-free in their hands, but the other relatives must include the full value of the gifts in their income, whether in cash or in kind, if the total value of all gifts, including of these gifts received during the year exceeded fifty thousand rupees. However, gifts received by one relative from another relative are completely tax-free for certain specific relatives regardless of the occasion.
Although gifts received by the bride and groom on the occasion of their marriage are completely tax-free in their hands, some clubbing provisions come into play when those gifts are received from certain specific relatives. Income from the gift of a daughter-in-law from her father-in-law or mother-in-law must be added to the income of the person-in-law who made the gift. However, in the case of gifts given to the daughter-in-law before marriage, these are outside of the clubbing regulations, but the 50,000 rupee threshold applies as she is not related until her marriage, so a gift to the daughter-in-law from the Parents-in-law Not recommended. It should be noted that the clubbing rules apply to the value of the gift even if the gifted asset changes shape. For example, in the event that jewelry is given by the parents-in-law to the daughter-in-law, although it is completely tax-free in the hands of the bride at the time of marriage, but the capital gains made at the time of sale must be beaten with the donor’s income, if the jewelry will be sold in the future.
Precautions in Accepting Wedding Favors
Although wedding gifts are completely tax-free, there are certain precautions you must take before you put these gifts on your records, especially if the gifts are of high value.
So if you can be shown to have received any amounts or assets at the time of your marriage, you must identify all of the people from whom you received the gifts. In addition, the tax officer can call the person over and try to inquire about the authenticity of the gift. The tax law stipulates that in the event that you are unable to provide a satisfactory explanation for assets found in your accounting books, the tax office will levy a flat tax of 60% + surcharge instead of adding this to the record price applicable to you. You will have to pay interest and penalties as bonuses in such a situation.
If you plan to use your family’s marriage occasion to launder money, please be careful. If the gifts received and recorded in the books come to the attention of the tax officer during the assessment process, the tax officer can ask you to provide details of the marriage costs incurred with the details of the person who paid the invoice. In addition, to assess the scope of the marriage, the officer may request a video recording and photo of various functions of the marriage. So look before you jump.
I am sure you have found the discussion above useful.
Balwant Jain is a tax and investment professional and can be reached at [email protected] and @jainbalwant on his Twitter handle.
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