Rituals are an essential part of any festival celebration. And so are gifts ! Festivals bring a whole lot of happiness and joy and of course, the joy multiplies with gifting. Most of us are aware of this. But are you aware of what gets taxed and what does not?
Ponniyin Selvan movie and the novel has had an everlasting impact on me like so many others. I thought it would be fascinating and intriguing to imagine a few instances of gifting using some of the characters in the historical fiction to explain the tax impact.
Relative (as per Income Tax Act):
Parantaka plans to gift all his three children Adithya, Kundavai and Arulmozhi with a residential flat each in Chennai. As per the Income Tax Act, gifts received from specified relatives are not taxable. Since they receive the immovable property from their father as gift, it would not be taxable in the hands of Adithya, Kundavai and Arulmozhi.
However, as per the Transfer of Property Act, the transfer of house property as a gift needs to be effected by a registered document (gift deed) signed by the person gifting the property. The amount of stamp duty payable on gift deed is same as in a regular sale.
Relative (that are not covered in definition):
Parantaka intends to gift his cousin Madurantaka a motor car as a token of love and affection. From Income Tax point of view, Parantaka is not a “relative” of Madurantaka.
Any “movable property” received as gift from a person other than a relative shall be taxed in the hands of the receiver if the fair market value of the “movable property” exceeds Rs 50,000.
A motor car is not covered in the definition of “movable property” under the Income Tax Act and hence it will be tax-free in the hands of Madurantaka
Employee:
Parantaka is very impressed by the Company’s key person, Vandiya thevan’s performance and wants to reward him appropriately. He decides to gift him a special recognition award in the form of Amazon gift vouchers worth Rs.1 Lac.
Any gift received by an employee from his employer is taxable as perquisites in the hands of the employee. Hence Vandiya Thevan’s pay slip and Form 16 would include this 1 Lac SR award as perquisite and shall be taxed accordingly.
Marriage:
Periya Pazhuvettarayar and Nandini are celebrating their wedding anniversary and Parantaka wants to gift Rs. 1 Lac as cash to Periya Pazhuvettarayar.
Any gift received on the occasion of marriage is exempt from tax. But the same cannot be said for anniversaries. Hence Rs 1 Lac will be taxed as “Income From Other Sources” in case of Periya Pazhuvettarayar.
Monetary gifts :
Pinaagapaani plans to commence a clinic for alternative medicine. His friends and relatives gift him money for the same. The amount he receives as gift sums up to Rs. 5 Lacs.
If the aggregate value of monetary gifts received by an individual in a financial year exceeds Rs. 50,000, the entire amount shall be taxed. Hence Rs. 5 Lacs shall be taxed as Income from other sources for Pinaagapaani.
Valuable gifts:
Sambuvarayar receives 100 gms of gold from Parantaka as gift. Bullions are covered under the definition of “movable property” and hence fair market value of the same in excess of Rs. 50,000 shall be taxed as income from other sources in the hands of Sambuvarayar.
Electronic Gadgets:
Aniruddha Brammaraayar is a legal adviser to Parantaka. He greatly appreciates Brammaraayar’s contributions and wants to gift an expensive smart watch.
Since electronic gadgets are not covered under the definition of “movable property” it is normally not taxed in the hands of the receiver. But since Aniruddha Brammaraayar will be receiving it as gift in the course of performing his professional duties, fair market value of such gadget shall be taxed as professional income.
Further Parantaka will be required to deduct tax as per the provisions of Sec 194R on the value of the gift.
How can we help you?
Various clauses from the Income Tax Act may be simplified in online contents. But most of the time, it requires professional help in identifying suitable route for specific instances. Similar to nurturing and taking care of personal health, it is important to also keep a tab on one’s financial health. We at Chockalingam Unnamalai & Associates, can help you understand the pros and cons of various choices you make in the context of personal taxation. You can bank on us for a stress free tax filing and related compliances.
Call us at +91 73050 56628 or drop a mail to frontoffice@onesourcevault.com
ITR Filing – Why choose us?
Effective compliance is a key pillar for growing your finances and career/business. Tax compliance in particular could be cumbersome and at times very stressful. We help you to navigate through the maze of changes to tax laws with ease.
We understand and operate on the principle – “Time is money”. We have a reasonable turnaround time (TAT) which ensures timely tax compliance.
We understand the importance of data security and hence operate in a data-secure environment. Onboard us and experience certainty and value for money!
[…] Related posts: Gifting under income tax law & it’s impact on the receiver […]