General provisions for taxation of gifts in India
Before the abolition of the Gift Tax Act in 1998, the donor (the giver of the gift) was required to pay gift tax on the value of the gift exceeding Rs. 30,000. After the abolition, neither the recipient nor the donor was subjected to any tax. This lacuna was grossly misused and which forced the government to bring in provisions to tax the gifts in the hands of the recipient in case the aggregate of all the gifts during a year exceeded a certain threshold limit.
Presently, this threshold limit is fifty thousand rupees. It is the aggregate value of all the gifts received during the year, and not the value of an individual gift, which is to be taken into account for determining the taxability of the gifts.
Specific provisions applicable to marriage gifts
While providing for taxation of gifts in the hands of the recipient, the lawmakers provided certain exceptions. Gifts received on the occasion of marriage are one of the exceptions provided in the law. In India, we have a tradition where relatives, as well as the bride and groom, receive gifts on the occasion of marriage.
Are all such gifts covered under the marriage exception and, therefore, tax-free? The answer is simple: no. It is only the couple getting married who enjoy the exception, and not all the relatives. The gifts received by the couple are fully tax-free without any upper limit. These gifts need not necessarily be from relatives to enjoy this exemption.
So all the gifts received by the bride and groom, irrespective of value, are tax-free in their hands, but the other relatives have to include the full value of the gifts in their income, whether received in cash or kind, in case the aggregate value of all the gifts, including these gifts, received during the year, exceeds fifty thousand rupees. However, gifts received by one relative from another relative are fully tax-free in case of certain specified relatives, irrespective of any occasion.
Clubbing provisions
Though gifts received by the bride and groom are fully tax-free in their hands on the occasion of their marriage but some clubbing provisions will come into play if these gifts are received from certain specified relatives. Income arising from the gift received by a daughter-in-law from her father-in-law or mother-in-law is required to be added to the income of the in-law who had given the gift.
However, gifts given to the daughter-in-law before marriage are outside of the clubbing provisions, but the threshold of fifty thousand rupees will apply, as she is a non-relative till she gets married, so gifts to the daughter-in-law by her parents-in-law are not advised. It may be noted that the clubbing provisions will continue to apply to the value of the gift even after the asset gifted changes its form.
So, for example, in case jewellery is gifted to the daughter-in-law, though fully tax free in the hands of the bride at the time of marriage but the capital gains, if any, realised at the time of sale will have to be clubbed with the income of the donor as and when the jewellery is sold in future. The clubbing will continue even after the conversion of gold jewellery into another form, till the relationship lasts. The clubbing will not extend to the income arising from investments made out of income already clubbed.
Precautions while accepting marriage gifts
Though gifts received at the occasion of one’s marriage are fully tax free but you need to take certain precautions before you record these gifts in your records, especially in case the gifts are of high value.
So, in case you have shown some amounts or assets as having been received at the occasion of your marriage, you will have to furnish the details of all the persons from whom you have received the gifts.
Moreover, the tax official may call the person to appear before him and may try to find out the genuineness of the gift. The tax law provides that in case you are not able to give a satisfactory explanation in respect of any asset found credited in your books of accounts, the tax department will levy a flat tax at 60%+surcharge instead of the same being taxed at the slab rate applicable to you. You will have to pay interest and a penalty as a bonus in such a situation.
In case you are planning to use the occasion of marriage in your family for money laundering, please be careful. In case the gifts received and recorded in the books come to the notice of the tax official during assessment proceedings, the tax officials can ask you to furnish the details of the marriage expenses incurred with the details of the person who had footed the bill.
Moreover, in order to gauge the scale of the marriage ceremony, the officer can ask for the video recording and photographs of various functions of the marriage. So look before you leap.
I am sure the above discussion has been useful to you.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his Twitter handle.
