Wedding gifts are tax-free, but be aware of capital gains tax rules, maintain records

You don't have to pay tax on your wedding gifts, but maintaining meticulous records will help.

Typically, any gift worth over Rs 50,000 is taxable, unless received from close relatives such as a parent, sibling or spouse.

However, this is not the case when it comes to wedding gifts where no matter who has given you the present—relatives, friends or acquaintances—as long as you have received them on the occasion of your wedding, these are tax-free. In the case of all other occasions, the monetary value of gifts given by people other than close relatives has to be declared under the head ‘Income from other sources’ in that year's income tax return and pay the tax on the full amount at the slab rate applicable to you.

“Gifts received by a groom or bride on the occasion of marriage from anyone, including from in-laws, are not liable to tax under Section 56(2)(x) of the Income-tax (I-T) Act,” underlined Mumbai-based chartered accountant Suresh Surana.

To clarify: In the context of gift tax, ‘specified relatives’ include parents, parents-in-law, spouses, siblings and spouse’s siblings, among others. In the case of weddings, even if you have received gifts from others—those who do not fall into this category—the presents will not be subject to the levy.

Gifts beyond wedding ceremonies

What’s more, the rules do not only apply to gifts received on the day of the main wedding ritual. The ceremonies and period around it also qualify for the relaxation. “The exemption is for gifts received ‘on the occasion of marriage’. Thus, rules do not specifically require that such gifts should be received on the day of the wedding but the gift should be linked to the wedding,” Surana pointed out.

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But be careful while availing of the exemption beyond a reasonable period. Chartered accountants say you need to be cautious while claiming tax-free status for gifts received over, say, six months between your engagement and wedding. “(The) I-T (department) may contend that the exemption may not be applicable as the gifts do not relate to the occasion of marriage and the recipient of such gifts would be at risk of being subjected to potential litigation,” said Surana.

Chetan Chandak, director, TaxBirbal, however, feels that such gifts, too, qualify for the exemption to wedding presents, given that in many cases, the ceremonies and multiple associated rituals are spread out over a long period of time.

“It starts with the engagement ritual and culminates with the actual wedding ceremony or reception. So one can claim that any gift received from the date of engagement till the wedding date can be considered as a gift received on the occasion of the marriage and, hence, exempt,” he argued.

However, at your end, ensure that you maintain records of all valuable gifts received throughout the period. Diligent record-keeping will ensure that in case you receive any tax notice, you have documentary evidence to back your claim. “Though this can be debated, it can be proved with the help of documents and records like invitation cards, list of invitees, list of the person from whom the gift is received, photographs, video recordings, bills of the gifted article, etc., if the need arises,” he explained.

Apart from a list of all financial gifts as also those received in kind, the records should keep track of the dates of receipt, names of the guests or relatives, and purchase invoices. “A gift received from any foreign relative may require maintenance of their travel schedule and other documents demonstrating that the gift received has clear association with the wedding,” said Surana.

Also read: Can wedding planners help contain costs?

Are wedding gifts subject to capital gains?

Section 56 of the I-T Act specifies the list of movable properties shares/securities, bullion, jewellery, archaeological collections, drawings, paintings, sculptures and also virtual digital assets that are exempt from tax in the case of weddings but subject to tax if received from non-relatives on other occasions.

Now, you may not have to pay tax on the monetary value of the gift received, but if you decide to sell it later and make gains, capital gains tax will be applicable. You will need to pay this tax on the profit made from the sale of, say, financial instruments or gold, depending on the nature and period of holding these assets.

“When you compute such capital gains, the cost of acquisition for the transferee or recipient of a gift would be the acquisition cost of the previous owner under Section 49(1) of the I-T Act. Further, the period of holding of such financial instruments or gold would include the period for which such asset was held by the previous owner/donor gifting such asset,” said Surana.

Any gains made on the sale of physical gold received at the time of the wedding will attract long-term or short-term capital gains tax, depending on the holding period.

If the holding period for gold is over two years, the long-term capital gains tax is 12.5 percent (plus cess of 4 percent). Do note, however, that the July 2024 budget has withdrawn indexation benefits that could have potentially brought down the capital gain and, hence, the tax outgo. If the holding period is shorter than two years, the gains will be treated as short-term gains and taxed at the slab rate applicable to you. You also need to understand the capital gain tax rules for gold exchange-traded funds or ETFs, gold funds and sovereign gold bonds while selling the units in future.

The date of receipt, date of acquisition of the original owner and the fair market value of the asset at the time of sale will be considered to compute the capital gains.

Capital gains rules for bride and groom vary

The capital gains tax rules apply differently to the bride’s gifts from her in-laws from those of the groom’s from his. “Parents-in-law would be covered under close relatives. However, while the gift itself is tax-exempt, if a daughter-in-law receives the gifts—say, money—from them and invests it elsewhere, any income generated would be taxable in the hands of the parents-in-law because of the clubbing provisions under Section 64,” noted Chandak.