Gift Tax – How to calculate Gift Tax
High value gifts were a safe mode to show one's love to others financially. But the tax authorities have made rules to tighten the provisions related to gifts. In fact the rule has become so strict to end the high value gifts people normally used to make to escape from paying tax. The rule thus effectively prevents money laundering in the in the name of high value gifts . Gift tax in India is regulated by the Gift Tax Act which was constituted on April 1, 1958. It came into effect in all parts of the country except Jammu and Kashmir. As per the Gift Act 1958, all gifts in excess of 25,000, in the form of cash, draft, check or others, received from one who doesn't have blood relations with the recipient, were taxable.
The change in the rule related to gifts says that the receiver has to pay tax for receiving any gift valued at Rs 50,000 and more. The 'any gift' clause means that not only cash but all gifts of any value. So if someone receives a gift of a house worth Rs 20 lakh ,then he/she is automatically in the highest income bracket and has to pay 30% + surcharge on value of the house as tax.
According to the law, individuals can receive gifts from the following sources:
- Relatives or Blood Relatives
- At the time of Marriage
- As inheritance
- In contemplation of death
Gifts Exempted from Tax
There is exemption for gifts received from certain people. The gifts that one receives from relatives on the occasion of marriage, the gifts receives from parents and grandparents, the gift received by a daughter-in-law from her parents-in-law, and gifts received by way of a will and inheritance are exempt. The gifts received by a son-in-law from his parent-in-law will be taxed.
A Non-Resident Indian can gift to his/her parents in India from their NRE (Non-Resident External) account without their parents suffering any tax.
The gifts received in the names of one's minor children will be clubbed with the parents' income for taxation purpose. Also the tax authorities alert in saying that, in case of both parents having income, clubbing will be done with that parent who is earning more. So one cannot hide under the cover of their minor children receiving the gifts.
Not only gifts, but any real estate deal done for values lower than the state governments fixed rates, will also be taxed. Here the tax will be charged on the difference between the state government's rate and purchase price. The tax needs to be paid by the buyer of the property.
Movable properties outside the country, unless the donor
a) Individual:is an Indian citizen, who is originally a resident of India, or
b) No-individualis resident of India during the year of gift
c) Out of balance gift by NRI (Non-Resident Indian) in his Non-resident account.
d) Foreign currency gift of convertible foreign exchange, remitted from overseas by an NRI to a resident relative.
e) Foreign exchange asset gifted by NRI to his/her relatives.
f) Special Bearer Bonds, 1991.
g) Saving certificates issued by the Central Government (notified as exempted).
h) Capital Investment Bonds up to ` 10, 00,000 per year.
i) Relief Bonds gifts by an original subscriber.
j) Gifts of Certain bonds from the NRI to his/her relatives, which are subscribed in foreign currency (specified by the Central Government).
k) Gift to government or any local authority.
l) Gifts to any charitable institutions.
m) Gifts to notified temples, churches, mosques, gurudwaras and other places of worship.
n) Gift to children for educational purpose (Reasonable amount).
o) Gifts by an employer to its employees in the form of bonus, gratuity or pension.
p) Gifts under will.
q) Gifts in contemplation of death.
Note: Please note that rules/provisions related to gift tax is subject to change. This article is just for information purposes only . Please contact you Tax Consultant or Chartered Accountant for more information.
Best Regards
Prakash Nair
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