Everybody loves gifts. The problem arises with income tax treatment of gifts. According to income tax law, any cash or in kind gifts more than Rs. 50000 from a non-relative is taxable in the hands of receiver.
Gifts may be in cash or in kind like immovable property, shares, debentures, jewellery and bullion etc.
There are some points where gifts from non-relative can be exempted from income tax. These are points.
Gift as inheritance
All gifts under a will, and all amounts received on the death of a person as a part of the inheritance, are fully exempt from IT. For example, if a person has no relative, he can give his wealth to his friend and will be tax exempted.
There is some issue regarding this exemption as the friend some legally bound and require probate from a court. The court will wait for a year, to check if someone else comes forward as a blood relation or heir to the assets. This will need to be announced through anewspaper – in English and a regional language. If no one comes forward, the probate will be issued and the property transferred in the friends name
Under Section 56 of the I- T Act, certain gifts are liable to income tax as income from other sources. This provision is applicable only for individuals and Hindu Undivided Families (HUFs). Even if a gift is received by any Trust or Association of Persons, it is not liable for I- T as “income from other sources”.
Again asset transfer from a Trust should be as inheritance or it will become taxable.. For example, if a person creates a Trust when hes alive where the beneficiaries are non- relatives and which dissolves on the death of the Trust creator, it might not always be considered inherited assets.
On contemplation of death of a donor
If a person is seriously ill and know he won’t survive, he can transfer all his assets to near ones that might not be relatives. In such case, the beneficiary is exempt from income tax on such assets.
Financial help by charitable trusts and non government organizations to people for education or medical treatment is exempt from income tax..
Any institutions referred to section 10(23C) of income tax help is also exempted from income tax.
Thus, scholarships, stipends or charities received from a charitable institution would be completely exempt from I- T in the hands of the recipients, provided the trust or institution giving the charity is registered under Section 12AA.
From public charitable trust or institution
Many registered charitable institutions and non- government organisations provide financial help to individuals for education or medical treatment.
Such monetary help is also exempt from I- T. A fund from any foundation, university or other educational institution or hospital or any trust or any institution referred to in Section 10( 23C) are all exempt.
Thus, scholarships, stipends or charities received from a charitable institution would be completely exempt from I- T in the hands of the recipients, says Shah of EY. Here, there is no monetary threshold, provided the trust or institution giving the charity is registered under Section 12AA.
Cash less than 50000 in a financial year is tax exempted in income tax.
Cash more than 50000
Cash more than 50000 from a relative in a financial year is exempted in income tax. But you must know what is relative in income tax view. To know click here.
Any gift in excess of Rs. 50000 from a HUF is taxable as HUF can’t have relatives.
One should consider getting gifts from non-relatives as the person should earn from you are getting gifts. Gifts rom retired person or house wife who don’t earn may also create problems.
Cars received from non-relative will be tax-exempt.
Gifts tax is applicable from September 1 2004 and the limit was 25000 which was increased to Rs. 50000 from April 2006.
On marriage or such occasions
A gifts from non-relative on marriage is totally exempt from income tax laws. There is no monetary limit too. There is no clarity in income tax provision as gift date should be same as marriage or child birth but that’s not an issue as long as gifts are exempted on marriage or child birth occasions.