Mar 14, 2013, 03.12 PM | Source: Moneycontrol.com
One of the main problems faced by individuals when they look to receive or give gifts is not being knowledgeable about when the gift would be taxable.
Arnav Pandya (more)
Financial Advisor & Writer, | Capital Expertise: Mutual Funds ,Fixed Income ,Tax
One of the main problems faced by individuals when they look to receive or give gifts is not being knowledgeable about when the gift would be taxable. The reason for this is that there is a term called relative which is present in the income tax act and gifts received from a relative would not be taxed in the hands of the receiver. This is the reason that the individual has to ensure that they check whether the relative who is giving the gift is covered by the definition otherwise the receipt could end up being taxed.
Overall nature of transaction
When it comes to question of gifts then the receiver of the gift will be taxed on the figure that is not exempt by including this in the income under the head of income from other sources. There are some receipts which are excluded from being included as the income and this will include the amount received as inheritance or the amount received at the time of a wedding or the amount received from relatives. In all other cases if the amount received is more than Rs 50,000 in a year then this figure would be included as income. Now the key part if the definition of the relative so that the individual knows the person from whom the receipt is not taxable.
Brothers, sisters, parents and children
The first group of people who would qualify as a relative under the rules would be the brother and sister of the individual. This along with the term all lineal ascendants and descendants ensures that the immediate family members would be considered as a relative. This would mean the father as well as grandfather as well as children and grandchildren. This makes the process of giving easier when so many people would be present to be covered under the term of relative.
In terms of the further coverage the brothers and sisters of the parents of the individual are also covered so this will bring into the fold all the aunts and uncles that are present in the family. Often a lot of gifts are given from them and hence this is not a concern. The spouse of all the categories of people mentioned would also be included as a relative which means that the wife of the uncle or the husband of an aunt or grandmother who could have given a gift would not be covered under the provision of having their contributions considered as taxable.
An important person who is covered under the entire provisions of gifts is the spouse of the individual. So if it is a husband then it would include his wife and for a female it would include the husband. Taking this term further the brother and sister of the spouse of the individual would also be covered under the definition of a relative. Add to this the fact that the spouse of such people has also been brought into the coverage and this ensures that the coverage gets wider.
Any lineal ascendant or descendant of the spouse of the individual along with their spouses would also be covered plus their spouses so this would mean that parents of the spouse and even grandparents can give a gift to the individual and this would not be taxed. The list of details about the relatives is quite vast in terms of coverage so most of the close relatives of the individual are included and this is something that has to be considered when there is a gift being received or given.
The author can be contacted at firstname.lastname@example.org
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