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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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.
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’.
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:
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.
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.
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.
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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