4 Types Of Tax-Exempt Gifts!

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  • 31 Jan 2023
4 Types Of Tax-Exempt Gifts!

Did you know that when you receive a gift, in cash or in-kind, you could be liable for paying tax on the gift? As per the Income Tax Act, gifts are taxed under the definition of ‘Income from other sources.’ The good news is that exemptions are applicable under the gift tax law.

Rundown Of Tax-Exempt Gifts

Gifts received from relatives:

Gifts become automatically tax-exempt regardless of the amount, if you receive them from the following relatives:

  • Your spouse
  • Your sibling
  • Your spouse’s siblings
  • Your parent’s siblings, i.e., your aunts and uncles
  • You or your spouse’s lineal ascendants, which means you and your spouse’s parents, grandparents, and so on
  • You or your spouse’s lineal descendants, which means you and your spouse’s children, grandchildren, and so on
  • The spouse of you and your spouse’s lineal ascendants and descendants
  • If you belong to a Hindu Undivided Family (HUF), all members of the HUF are considered to be your relatives.

Gifts below Rs 50,000:

What happens if you receive gifts in cash or in-kind from a person who is not listed as a relative, as mentioned above? If the total value of the gifts in a single financial year is below Rs 50,000, then the gifts will not attract gift tax. However, if you receive gifts exceeding Rs 50,000 in a financial year, you will be charged tax per the income tax slab you fall under. Gifts in kind could mean gold, real estate, or any other valuable asset or item. For example, you receive Rs 25,000 from one friend and Rs 35,000 from another, making the total gift amount Rs 60,000. As this total amount exceeds Rs 50,000 in a single financial year, you will be charged gift tax on the total figure.

Gifts received at your wedding:

According to the law, any gift received on the occasion of your wedding will be fully exempt from gift tax. However, keep in mind that this law is only applicable to your wedding. You cannot claim this exemption on gifts received on the occasion of your child's or siblings’ weddings.

Gift received by way of inheritance:

Any kind of gift that you receive by way of inheritance, under a will, or in contemplation of the passing of the donor/payer will be fully tax-exempt. In this case, also, there is no upper limit for this exemption. This means that even if the total value of your inheritance is over Rs 50,000 and runs in lakhs or crores, it will not attract any gift tax. The whole gift is considered tax-free, no matter how the value of the inheritance.

In Conclusion

The tax department usually scrutinises high-value gifts due to the potential for fraud. So, maintain all documentation to establish authenticity when receiving high-value gifts. Apart from that, you can enjoy tax-free gifts as long as the above conditions are met.

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