Tax on gifts

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The Central Board of Direct Taxes (CBDT) gave effect to the budget declaration to tax all gifts in kind worth over Rs 50,000 from October 1,
2009.

There has been a change in the provisions relating to tax on gifts. The Central Board of Direct Taxes (CBDT) gave effect to the budget declaration to tax all gifts in kind worth over Rs 50,000 from October 1, 2009. Any gift, including real estate, car and diamond jewellery , will now attract income tax. Till now, income tax was levied only on cash gifts above Rs 50,000.

As per the changes brought about in the Budget 2009-10 , all gifts in kind have been brought into the tax net. Cash gifts above Rs 25,000 are being taxed since April 1, 2004. This limit was raised to Rs 50,000 effective April 1, 2006. Any person who receives such a gift on or after October 1, 2009 must pay income tax due on the value of the gift and disclose the taxable value in the return of income for the assessment year 2010-11 , and subsequent years.

However, a gift from a relative on the occasion of marriage , under a Will or by way of inheritance, from any local authority, or from any fund or trust is exempted from tax. Spouse, siblings, parents and any lineal ascendant or descendant are defined as relatives under the Income Tax Act.

A gift of Rs 1 lakh will be treated as taxable income, attracting an income tax of Rs 30,900, if you fall in the top tax bracket of 30.9 percent . Previously, only gifts of any sum of money (and not gifts in kind) in excess of the prescribed limit of Rs 50,000 were taxed as income in the hands of the recipient , subject to specified exceptions. The changes come as per the new provisions of Section 56(2)( vii) introduced by the Finance Act 2009, and are effective from October 1, 2009.

As per the provisions, eight specified properties including land and building, shares and securities, jewellery , archaeological collections , and any work of art, received by an individual, either as a gift or as a purchase consideration treated by an assessing officer as inadequate, if exceeding Rs 50,000, will be taxed as income from other sources.

With only eight properties specified in the list, a host of other valuables such as cars, electronics, furniture, air tickets etc have still been kept out of the tax purview and you have the luxury of receiving gifts of any of these even beyond October 2009. The specified exceptions will continue to apply in case of gifts in kind also. However, the definition of 'relative' will apply not as understood in the common parlance, but as prescribed in Section 56.
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