India is a land of festivals and celebrations. As a nation, we love to celebrate every occasion that comes to our hand. And what is a celebration without the exchanging of gifts? While the term ‘gift’ can denote anything from a bouquet to a four-wheeler, we are talking about the second type here- the big gifts. To save taxes on giving and receiving gifts, first, we need to know the tax rules of India thoroughly to save ourselves from any unintentional tax evasion resulting from ignorance. To help you better, here we have an Income Tax Guide that will help you understand how gifts are taxed in India.
Under the income tax rules of India, gifts in the forms of cash or check, immovable properties like land or house/ apartment, movable properties like a car, jewellery, securities, paintings or other artworks, bonds and securities, fixed deposits, all are taxable. The rules for taxation on gifts have been modified many times in the history of independent India. The Gift Tax Act was introduced in 1958. Under this act, all gifts in forms of cash, movable or immovable properties were taxable when their value was above a certain limit. Then in 1998, the Gift Tax Act was altogether abolished, and all gifts were made tax-free. Again, in 2004, taxation on gifts was reintroduced. Finally, the gift tax rules that we are following today are the results of the amendments made again in 2017. Let’s take a look into the income tax guide for gifts in India.
According to new income tax rules and amendments made in 2017, all gifts amounting to more than Rs. Fifty thousand per year are taxable while gifts are amounting to less than Rs. Fifty thousand per year are tax-free. Of course, these rules have some relaxations and exceptions. It is possible to save taxes on gifts, but you have to know the basic rules of gift taxation in India. The main points to remember about gift taxes in India are given below.
However, in some specific cases, gifts are completely exempted from tax liabilities. These specific cases include:
Gifts received from any other relatives apart from those mentioned here will be taxable at the hand of the recipient.
Again, some of these rules also have some exceptions. For example, gifts received from relatives listed here are tax-free, but the incomes earned from those gifts are taxable. For example, if your wife gifts you a fixed deposit, it will be tax-free, but the interest earned from the fixed deposit will be taxable under your name. Similarly, if your parents have gifted you an apartment, it will be tax-free when received by you, but rents earned from that apartment will be taxable.
If you want a thorough income tax guide when it comes to gifts, you should also keep in mind the following points:
If tax saving is your only goal, however, then there are better ways available too. While gifting to relatives can be a smart way to save some taxes while earning some extra incomes, it can raise some other issues like succession issues, or owner issues. If you transfer your properties to your dependent relatives, they will be the legal owner of those properties and all the incomes generated from them. So, you will have no legal claims on such properties and incomes. So the trust factors come up here. If you are looking for an income tax guide to save taxes in any way, take a look into these options too.
under this section, you can claim up to Rs. 1.5 lakhs of the tax deduction by investing in the following government schemes:
Under this section, you can save taxes by investing in health insurance plans. For citizens under the age of 60, the maximum tax deduction is Rs. 25000, and for senior citizens, the limit is Rs. 30000.
Under this section, tax exemption is granted for the medical cost of a dependent of the taxpayer.
Tax exemption can be claimed if the taxpayer has to pay for the treatment of critical illnesses like neurological diseases, Cancer, Aids, Renal Failure or Hematological Disorders. The maximum tax deduction amount is Rs. Forty thousand for citizens under 60 years, Rs. Sixty thousand for Senior Citizens (60-80 years) and Rs. Eighty thousand for Very Senior Citizens (above 80 years)
Any contribution made in the forms of check or bank draft to certain charities and distress relief funds are tax exempt. Donations made in cash are tax exempt up to Rs. 10000.
if a person is employed in an organisation for more than five years, he or she is entitled to receive a gratuity amount from the employee. This gratuity amount is tax-free up to Rs. 10 lakhs.
Certain reimbursements offered by an employer to their employees are tax exempt — medical expenses of up to Rs. Fifteen thousand per year are tax-free.
You needed an Income Tax Guide for tax savings, and we provided it. While gifts can be a good way to save taxes, you need to be familiar with the latest amendments of the Income Tax Act at all times to efficiently use the tax exemption options to your benefit.
Helpful Resources: Online Income Tax Calculator