Gifting money or assets to family members may seem simple, but tax implications can get tricky. Today's Ask Wallet Wise query decodes how gifts to your wife, son, daughter-in-law, or son-in-law are treated under Indian income tax laws and when clubbing provisions can come into play.
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What are the Indian income tax provisions on any amount paid as a gift to daughter in-law, wife, son, son-in-law?
Expert Advice: After the abolition of the Gift Tax Act, under which the donor was required to pay tax on gifts made beyond a prescribed limit, the government shifted the tax liability to the recipient through amendments to the Income Tax Act.
As long as the aggregate value of all gifts received during a financial year does not exceed Rs 50,000, such gifts are not treated as income. However, once the value exceeds this threshold, the entire amount becomes taxable in the hands of the recipient unless covered under certain exceptions.
One key exception is that gifts received from specified relatives are fully exempt, irrespective of their value. Gifts by parents-in-law to a daughter-in-law or son-in-law, gifts received by a wife from her husband, and gifts received by a son from his parents fall under this exemption, as these donors qualify as “specified relatives.” Hence, the gifts received in these cases will not be taxable in the hands of the recipients.
However, clubbing provisions apply in some situations. For example, when a daughter-in-law receives gifts from her parents-in-law, or a wife receives gifts from her husband, there will be no tax liability at the time of receiving the gift, but any income earned from the gifted asset will be added to the donor’s income. Interestingly, clubbing applies only for spouse, daughter in law and minor child and does not apply in case of son-in-law . These clubbing provisions continue to apply year after year, as long as the relationship exists. The rule also extends to assets converted into other forms, but does not apply to income generated from investments made out of income that has already been clubbed once.
Please note that clubbing provisions do not apply if gifts are made to a would-be wife or daughter-in-law before marriage. However, in such cases, if the total value of gifts received during the year exceeds Rs 50,000, it becomes taxable since they are not covered under the definition of specified relatives before marriage.
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