Giving gifts to near and dear ones is very much prevalent in our Indian culture. Generally, gifts are given to express love and affection. Sometimes, we may also help the needy one by providing some monetary help. However, Gifts can also be good tax planning tools.
As per Income Tax Provisions the following income shall be chargeable to Income Tax under the head ‘Income from other sources', Where an individual or a Hindu undivided family receives, in any previous year, from any person or persons:
b) Any immovable property:
i) without consideration, the stamp duty value of which exceeds Rs.50,000/-, the stamp duty value of such property;
ii) for a consideration, which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/-, the difference between the stamp duty value of such property and the consideration received.
c) any property, other than immovable property,:
i) without consideration, the stamp duty value of which exceeds Rs.50,000/-, the stamp duty value of such property;
ii) for a consideration, which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/-, the difference between the stamp duty value of such property and the consideration received.
Provided further that this clause shall not apply to any sum of money or any property received:
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer or donor, as the case may be;
Please, note that gifts received from following relatives (donors) are tax free for Donor as well as Donee.
List of Male Donors:
Father, Brother, Son, Grand Son, Husband, Sister‘s Husband (Jija), Wife’s Brother (Sala), Husband’s Brother (Dewar), Mother’s Brother (Mama), Mother’s Sister’s Husband (Mausa), Father’s Brother (Chacha/Tau), Father’s Sister’s Husband (Fufa), Grand Father (Dada,Nana), Daughter‘s Husband (Jamai), Spouse’s Father (Sasur), Spouse Grand Father (Dada Sasur)
List of Female Donors:
Mother, Sister, Daughter, Grand Daughter (Poti) Wife, Brother’s Wife (Bhabhi), Wife’s Sister (Sali), Husband’s Sister (Nanad), Mother’s Sister (Mausi), Wife’s Brother’s wife (Sala Heli), Father’s Brother’s Wife (Chachi or Tai), Father’s Sister (Bua), Grand Mother (Dadi, Nani), Son’s Wife (Bahu or Putra Vadhu), Spouse’s Mother (Saas)
In other-words, any lineal ascendant or descendant of Individual or Spouse of Individual is a relative.
Keeping in mind the above provisions, we can plan our gifts so as to reduce final tax liability.
Tax Planning through Gifts to Wife or Son’s Wife:
Though gift received from a Relative is Tax Free, however, Gifts given to Wife or Son’s wife attract clubbing provision. This means any income arising from investment of such gifted sums will be clubbed in the hands of Donor i.e. Husband or Father-In-Law, as the case may be. So, it is always better to invest the gifted amount in such investment options, which are tax free. E.g. the amount can be invested in Listed Company Shares, PPF, ELSS Mutual Funds etc. As Long term Capital Gains earned on selling of these investments or any income accruing on these investments (like interest on PPF account) will be tax free, so it will not increase the tax liability of Husband. And later, wife can invest the earned income anywhere she likes and income on that investment will not be clubbed in Husband’s income.
Tax Planning through Gifts to Parents or Major Children:
If your income is taxable in 30% tax slab than you can plan gifts to your Parents, who are not having taxable income or the income is taxable in lower tax brackets. E.g. if one has surplus funds of 50 lacks, s/he can gift 25 lacks to his/her parents. And suppose his/her parents invest these funds in the bank FDR then each of them may get annual income of Rs.2,25,000/- (say @9%), which will not be liable to any tax. If the same income is taxed in the individual hands, the tax liability would have been Rs.1,35,000/- (@ 30% on 4,50,000/-). In this way, one may save substantial amount of tax year after year. Similarly, if one has major Childrenm who are yet to earn any income then money can be gifted to them. So, that an additional exemption limit and benefit of lower taxation slab can be utilized.
Tax planning through Gifts on occasion of Marriage:
1) Gifts received on occasion of marriage of an Individual are tax free in the hands of Giver and receiver both,
2) Clubbing provisions are not attracted,
So this provision can be utilized to its utmost benefit.
Gifts valuing below Rs.50,000/- (in aggregate during a year)
Gifts of aggregate value upto Rs.50,000/- can be accepted from any one without attracting any tax liability.
Gifts under a WILL:
Gifts to any person under WILL are Tax Free.
In Gist:
Gifts can always be planned from a person in a higher tax bracket to a lower tax bracket or Nil Tax bracket. Please note that the gifts should be reasonable and justifiable. It’s always better to prepare a Gift Deed for proper recording and valid proof of transaction. Duly incorporate therein the PAN and Address of the Donor, nature of Gift, Value of Gift, Reasons for Gifting, etc. Take the benefit of same before they disappear!
As per Income Tax Provisions the following income shall be chargeable to Income Tax under the head ‘Income from other sources', Where an individual or a Hindu undivided family receives, in any previous year, from any person or persons:
a) Any sum of money, without consideration, the aggregate value of which exceeds Rs.50,000/-, the whole of the aggregate value of such sum;
b) Any immovable property:
i) without consideration, the stamp duty value of which exceeds Rs.50,000/-, the stamp duty value of such property;
ii) for a consideration, which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/-, the difference between the stamp duty value of such property and the consideration received.
c) any property, other than immovable property,:
i) without consideration, the stamp duty value of which exceeds Rs.50,000/-, the stamp duty value of such property;
ii) for a consideration, which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/-, the difference between the stamp duty value of such property and the consideration received.
Provided further that this clause shall not apply to any sum of money or any property received:
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer or donor, as the case may be;
Please, note that gifts received from following relatives (donors) are tax free for Donor as well as Donee.
List of Male Donors:
Father, Brother, Son, Grand Son, Husband, Sister‘s Husband (Jija), Wife’s Brother (Sala), Husband’s Brother (Dewar), Mother’s Brother (Mama), Mother’s Sister’s Husband (Mausa), Father’s Brother (Chacha/Tau), Father’s Sister’s Husband (Fufa), Grand Father (Dada,Nana), Daughter‘s Husband (Jamai), Spouse’s Father (Sasur), Spouse Grand Father (Dada Sasur)
List of Female Donors:
Mother, Sister, Daughter, Grand Daughter (Poti) Wife, Brother’s Wife (Bhabhi), Wife’s Sister (Sali), Husband’s Sister (Nanad), Mother’s Sister (Mausi), Wife’s Brother’s wife (Sala Heli), Father’s Brother’s Wife (Chachi or Tai), Father’s Sister (Bua), Grand Mother (Dadi, Nani), Son’s Wife (Bahu or Putra Vadhu), Spouse’s Mother (Saas)
In other-words, any lineal ascendant or descendant of Individual or Spouse of Individual is a relative.
Keeping in mind the above provisions, we can plan our gifts so as to reduce final tax liability.
Tax Planning through Gifts to Wife or Son’s Wife:
Though gift received from a Relative is Tax Free, however, Gifts given to Wife or Son’s wife attract clubbing provision. This means any income arising from investment of such gifted sums will be clubbed in the hands of Donor i.e. Husband or Father-In-Law, as the case may be. So, it is always better to invest the gifted amount in such investment options, which are tax free. E.g. the amount can be invested in Listed Company Shares, PPF, ELSS Mutual Funds etc. As Long term Capital Gains earned on selling of these investments or any income accruing on these investments (like interest on PPF account) will be tax free, so it will not increase the tax liability of Husband. And later, wife can invest the earned income anywhere she likes and income on that investment will not be clubbed in Husband’s income.
Tax Planning through Gifts to Parents or Major Children:
If your income is taxable in 30% tax slab than you can plan gifts to your Parents, who are not having taxable income or the income is taxable in lower tax brackets. E.g. if one has surplus funds of 50 lacks, s/he can gift 25 lacks to his/her parents. And suppose his/her parents invest these funds in the bank FDR then each of them may get annual income of Rs.2,25,000/- (say @9%), which will not be liable to any tax. If the same income is taxed in the individual hands, the tax liability would have been Rs.1,35,000/- (@ 30% on 4,50,000/-). In this way, one may save substantial amount of tax year after year. Similarly, if one has major Childrenm who are yet to earn any income then money can be gifted to them. So, that an additional exemption limit and benefit of lower taxation slab can be utilized.
Tax planning through Gifts on occasion of Marriage:
1) Gifts received on occasion of marriage of an Individual are tax free in the hands of Giver and receiver both,
2) Clubbing provisions are not attracted,
So this provision can be utilized to its utmost benefit.
Gifts valuing below Rs.50,000/- (in aggregate during a year)
Gifts of aggregate value upto Rs.50,000/- can be accepted from any one without attracting any tax liability.
Gifts under a WILL:
Gifts to any person under WILL are Tax Free.
In Gist:
Gifts can always be planned from a person in a higher tax bracket to a lower tax bracket or Nil Tax bracket. Please note that the gifts should be reasonable and justifiable. It’s always better to prepare a Gift Deed for proper recording and valid proof of transaction. Duly incorporate therein the PAN and Address of the Donor, nature of Gift, Value of Gift, Reasons for Gifting, etc. Take the benefit of same before they disappear!
