Legal Question in Tax Law in India

Re: gifting money

There is no standard mode for gifting movable property i.e money. But under the income tax act if money is gifted to brother/sister/father/mother/husband/wife it has to be given by cheque and a simple declaration is to be given that out of natural love and affection i am gifting this money to XYZ.

Re: gifting money

Gifts from Relatives are Tax-Exempt

Importantly, the provisions of the aforesaid Section 56(2)(vi) applicable to the taxation of gifts in excess of Rs. 50,000 in a financial year in the aggregate are applicable for gifts received from non-relatives. Thus, any gift from relatives of any amount during the financial year is completely exempt from tax. Therefore, it's crucial to know the meaning of the expression 'relative' for this purpose. The Explanation to Section 56(2)(vi) provides that the expression "relative" means: �

Spouse of the individual;

Brother or sister of the individual;

Brother or sister of the spouse of the individual;

Brother or sister of either of the parents of the individual;

Any lineal ascendant or descendant of the individual;

Any lineal ascendant or descendant of the spouse of the individual; and

Spouse of the person referred to in clauses (ii) to (vi).

Thus, a gift received by an individual from his spouse, or from his brother or sister, or from the spouse's brother or sister, parents, or from any lineal ascendant or descendant of oneself or one's spouse would normally be fully tax-exempt. Similarly, any gifts of any amount whatsoever received from the spouses of any of these persons would also be completely exempt from income tax.

For example, if Mr. A receives a gift of Rs. 200,000 in cash from his maternal uncle, that is, his mother's brother, it would be exempt since the maternal uncle would be brother of the parent of the individual concerned and would come within clause (iv) of the aforesaid Explanation.

Hence, whenever you receive any gifts from relatives you must carefully apply the test to ascertain whether the person concerned falls within one of the seven categories of "relatives" or not. If a person who makes a gift does not fall within any of the above categories, then he would be considered as a non-relative and gifts from such people would be exempt only up to the extent of Rs. 50,000 in a financial year. It may be noted that since a Hindu Undivided Family can't have relatives, any gifts received by it in excess of Rs. 50,000 in a year would be liable to full income tax.

1. Always take gift by cheque or draft .

2.Get a gift deed mentioning the relationship.Its always better to mention PAN number of the Donor in the gift deed.

3.Its better if the donors' return , P &L account and balance sheet , if available , should also be kept ready .In case required , it should be submitted to A.O.

If you do that, gift can be enjoyed without any botheration in future.