Tax implications on gifting are not very straightforward. The rules such as gifting limits, exemptions, clubbing income vary. Let us help you navigate through the gifting maze.
You don’t need to pay any tax if the gift is given by spouse, siblings, brother-in-law or sister-in-law, spouse’s or your parents' siblings, spouse’s or your lineal ascendants or descendants, spouses of the above.
Any assets or money received as a gift, valued at Rs 50,000 or below in a year, are tax-free.
Gifts received by a couple for their marriage are completely exempt from gift tax. It doesn’t matter that the gift was given by someone who is not a close relative or friend. The estimated value of one or all gifts may exceed the Rs 50,000 clause mentioned above, but will still not be charged to tax. For example, if your uncle gifts you a car on your wedding day, it will be exempt from tax. If your parents gift you a house for your wedding, then it will be tax-free. If your friends buy you a gift of Rs 2 lakh, it will still be tax-free in your hands.
Cash gifted by individuals to their spouse is exempt from gift tax, but any income earned from this gift in the form of interest is taxable. If the spouse is unemployed, then the income earned from the gift in the form of interest is clubbed with the gifter’s income and charged tax.
For example: If you gift your unemployed spouse Rs 2 lakh and he/she gets a fixed deposit in his/her name for that amount and earns 10% interest on it. The interest of Rs 20,000 will be added to your income for that financial year. If, however, he/she reinvests this interest in another FD the following year and gets 10% interest on it, the interest income of Rs 1,800 will be considered your spouse’s own income.
Tips and tricks to save tax
If your spouse is unemployed, and if you have already exhausted your 80C exemption, you can gift your spouse Rs 1.5 lakh, which can then be used to invest in an equity fund (returns are tax-free after one year) an ELSS fund (returns tax-free after 3 years), a debt fund (returns taxed based on indexation after 3 years) in his/her name.
If your spouse is employed and has meaningful taxable income and if you have a child who is 18 years or older you can also gift an investment to that child. Any income earned from this gift will be taxed in their hands and not clubbed with your income.
Points to remember as a gift giver
- You don’t pay tax on money gifted to someone
- You can’t deduct this amount from your income
- Income earned from this gift by your unemployed spouse or daughter-in-law alone is clubbed with your income.
- Further income earned from investment of earned income (from gift) is taxable in hands of receiver alone
The writer is co-founder, FinAskus
