Income Tax E-filing For Gifts Received During The Year 2018

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?

Often, people gift just to save tax. They divert some portion of their income to friends and relatives. The Income Tax Act, 1961, taxes gifts as well. In certain cases, the receiver and not the givers are taxed. Generally, gifts are not taxable, but if they meet certain criteria, they are taxable.

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Income Tax E-filing For Gifts Received During The Year 2018

While gifts are a good tool for tax planning, you will have to be extremely careful on how you put them to use. Many taxpayers do not disclose gifts given and received. They may not be aware of the consequences. Non-disclosure of gifts may attract penalties ranging from 50% to 200% of tax payable on the amount that you sought to evade by way of gifting.

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Gifts are taxed based on two broad categories:

1. Gifts received from the employer
2. Gifts received from others

1. Gifts received from the employer:

Employers tend to acknowledge, appreciate and reward employees on various occasions. They do this to boost employee morale. If you receive a gift from your employer, you are liable to pay tax on the gift if its value is Rs 5,000 or more.

Therefore, gifts from employers below Rs 5,000 in aggregate during a particular financial year are exempt from tax. Gifts from employers are taxable as perquisites under the head ‘Income from Salary’.

2. Gifts received from others:

Section 56 of the Income Tax Act, 1961, governs gifts received from persons other than employers. Taxable gifts received from others are taxable under the head ‘Income from Other Sources’.

There are three categories of gifts as laid down by the income tax law:

• Gifts in the form of cash
• Gifts in the form of immovable property
• Gifts in the form of movable property

Gifts are tax exempt if received in the following situations:

• Gifts received from specified close relatives*
• Gifts received on the occasion of your marriage
• Gifts received by way of a will or inheritance
• Gifts received in contemplation of death of the donor
• Gifts received from a registered trust or institution
• Gifts received in the vent of distribution of assets at the partition of HUF

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Following is the list of *specified close relatives:

1. Spouse
2. Children, stepchildren and adopted children
3. Daughter-in-law and son-in-law
4. Parents
5. Stepfather and stepmother
6. Parents-in-law
7. Siblings
8. Half brother and half-sister
9. Brother-in-Law and sister-in-law
10. Spouses of brother-in-law and sister-in-law
11. Grandparents
12. Grandparents of spouse
13. Grandchildren
14. Spouses of grandchildren
15. Great grandchildren
16. Spouses of great-grandchildren
17. Great-grandparents
18. Great-grandparents of spouse
19. Parents’ brother
20. Spouse of parents brother
21. Parents’ sister
22. Spouse of parents’ sister
23. Spouses of siblings

Following is the list of persons not deemed as ‘relatives’:

1. Step-brother
2. Step-sister
3. Nephew
4. Niece
5. Cousins

Non-exempt gifts in the form of cash or cheque are taxed, if their value exceeds Rs 50,000 in aggregate in a particular financial year. The whole of the aggregate amount is taxed.

Gifts in the form of immovable property:

• These gifts are charged to tax only if the net benefit of Rs 50,000 accrues.
• Immovable property received as gifts without consideration: If the stamp duty value exceeds Rs 50,000, such stamp duty value will be taxed.
• Immovable property received as gifts for a consideration: If the actual cost of acquisition is less than the stamp duty value by an amount exceeding Rs 50,000, the difference between stamp duty value and consideration is chargeable to tax.

Gifts in the form of movable property:

Movable property can be shares, securities, jewelry, archaeological collections, drawings, paintings, sculptures, work of art, bullion, and so on. If you receive movable property as gifts or buy them at a price lesser than its fair market value, the recipient will be taxed on the value of benefits.

• Movable property received as gifts without consideration: If the aggregate fair market value of all the movable properties received in a particular year exceeds Rs 50,000, the whole aggregate fair market value will be taxed.
• Movable property received as gifts for consideration: If immovable property is purchased for a consideration less than its aggregate fair market value by an amount exceeding Rs. 50,000, the difference between the aggregate fair market value and the consideration is taxed.

Gifts which are not covered under the definition of movable property under the Income Tax Act, even if gifted by someone other than specified close relatives, are not taxed.

Disclosure of gifts in the Income Tax Returns:

Depending on the nature of the gifts received, they should be disclosed under the Schedule Salary or Schedule OS of the ITR. Non-taxable gifts should be disclosed in Schedule EI of the ITR.

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