Gifts represent love, care and appreciation. They symbolize gratefulness and selflessness. When gifts have to do with sentiments and emotions, why does Tax come into the picture at all?
Often, we gift just to save tax. We divert some portion of our income to friends and relatives. What we don’t realize is that not every gift is effective in saving tax. Sometimes, a gift might turn out to be a burden. So, if you are planning on gifting someone, beware, it might be you who would be taxed and not the receiver. Read on to learn more
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If you receive a gift or a benefit from your employer due to your job or position, it is called a perquisite. These benefits are over and above your salary or wages. If the aggregate value of perquisites you receive in a financial year exceeds Rs 5,000, it is taxable.
In order to save tax, if a husband plans to gift money to his wife, it will be taxable in his hands. The gift is not taxable or is exempt only if the money is given with an adequate consideration. The gift is clubbed with his income and thus, charged to tax. Same applies if a wife gifts her husband.
Income generated from such a gift, if any, is also taxable in the hands of the giver. Say you do not have any source of income and your spouse gifts you cash which you invest in an FD. If the interest income generated from such an investment exceeds Rs 10,000, it will be taxable in your hands.
If your parents are retired and do not have any source of income, or their income falls in a lower tax bracket, you can gift them cash. They can in turn, invest this money in the senior citizen’s savings scheme (SCSS), which offers a high-interest rate.
SEE ALSO: How Are Gifts Taxed?
Minors earn income from SB accounts, FDs and other investments parents make in their name. Any income from these investments is clubbed with parents taxable income (the higher earning parent) and taxed depending on their tax slab.
Clubbing provisions are not applicable if the minor earns income on account of activity involving application of skill, talent or specialized knowledge and experience. If your minor son/daughter earns money through a quiz/talent/specialized knowledge, income earned will be taxable in the minor’s hands. Tax will be on a gross basis at a flat 30% + education cess. Therefore, think twice before gifting your mnor child.
You can save tax by gifting a close relative (certain specified relatives only), if their income is not taxable or if they fall under a lower tax bracket. Be mindful of other factors like succession issues and so on.
This is treated just the same way as when a husband gifts a wife, or vice versa.
Consult your financial advisor or your chartered accountant before you make the gift. Discuss the tax liability that will arise from investing money received as a gift. Also, keep in mind the application of clubbing provisions of the Income Tax Act.
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