Indian marriages see a huge influx of gifts. The newlyweds are given gifts from their immediate families and friends. A common question arising in the minds of the newlywed taxpayers is revolving between marriage gifts and taxation. Section 56 of the Income Tax Act states that cash, jewelry, house, and property received as gifts are exempted from tax.
Newlyweds should be aware of the taxability of gifts received in marriage. In this article, we will address marriage gifts and their taxation under the Income Tax Act.
A gift can be anything ranging from money in the form of a cheque or cash or immovable property like land or movable property like jewelry.
As per Taxation law in India, the taxation of gifts is done in the hands of the recipient under the heading of ‘income from other sources’ in section 56. In terms of general gifts which sometimes exceed Rs. 50,000, then the whole amount is taxable. If the gift is an immovable property received without consideration and the stamp duty is more than Rs. 50,000 then stamp duty value of such property is taxable. If someone receives movable property without consideration and the market value is more than Rs. 50,000 then taxation is done on the charge on the aggregate fair market value of the movable property.
In India we witness big fat Indian weddings having loads of customs and traditions. The relatives, bride, and groom all receive an end number of gifts. The gifts received by the couple are not taxable.
In other words, gifts received on the weddings are exempt from taxes in India. The gift should be from any family members, relatives, and friends. These gifts range from electronics, moveable and immovable property to tangible goods like jewelry. Here property can be land, building, shares, and securities, paintings, etc.
If the gift is in cash, then the couple should deposit the money around the wedding date. If the gift is of high value, then it should be accompanied with a gift deed. The couples should give all the gifts well documented.
List of General Exempted Gifts in India
Gifts up to Rs. 50,000 which are received in a financial year are exempted from taxes. But if the amount exceeds then it is taxable.
Gifts from certain relatives like father, mother, brother, sister, or spouse are exempt regardless of the amount. Even though gifts are exempt, the income generated from such gifts is taxable.
Gifts in marriage are exempt.
Gifts on the death of the donor under any will or inheritance.
Property received from the local authority is given under section 10(20) of the Income Tax Act.
Properties received from any foundation, educational institution, or trusts, etc. under section 10(23C).
Properties received from trusts in section 12AA.
Legal Provision for Taxation of Gifts
Earlier under the Gift Tax Act 1958, there was a gift tax on gifts over Rs. 30,000. But this act was abolished in 1998. After the abolition, the receipt and the donor both were not taxed. This was highly misused by the people. Therefore the government introduced taxation on gifts if it crosses a certain threshold limit of Rs. 50,000. Under section 56(2)(V) of the Income Tax Act, 1961 gifts received by someone are taxed at the hands of the recipient under ‘Income from other source.’
Different Types of Wedding Gifts
Since India has a diverse culture with week-long wedding functions, gifts are exchanged at various functions. There are pre and post-wedding gifts to the bride and groom. The Courts in India have held that the gifts associated with any event of marriage will be deemed to be “on the occasion of marriage.”
The most important thing is the relationship between the gift and the marriage, Whether it is given in sangeet or Mehendi ceremony or on the occasion of marriage is not relevant. Hence, gifts received in ceremonies conducted before marriage are also tax-exempt.
The same rule applies to the bidaai ceremony also, if any gift is given on that day it will be deemed to be on the occasion of marriage.
But this rule does not apply to engagement ceremonies. An engagement is a step toward marriage. If suppose the prospective mother-in-law wants to give jewelry costing more than Rs. 50,000 to the prospective bride then it would be taxable as there is no legitimate relationship between the two. They are not covered under the definition of relative under the Income Tax Act as it does not include prospective relatives.
Is gift in cash and kind taxable?
All kinds of gifts are taxable whether it’s in cash or kind. However, if the gift is less than Rs. 50,000 then the same is exempted from taxation.
Precautions while accepting marriage gifts
Although gifts on marriage are fully tax-free then also one needs to take precautions when dealing with high-value gifts. If someone has shown the gifts as received on marriage, then he has to furnish the details about the gift. The families should prepare a list of donors with all the details. The assessing officer or tax officer can call the person to check if the marriage gift is genuine. If the person doesn’t give a satisfactory explanation, then the department will levy a tax at 60% slab plus the surcharge instead of it being taxed according to the tax slab. Additionally, he has to pay interest as well as a penalty.
People thinking of indulging in money laundering in marriages should refrain from doing such acts. If the gifts recorded in the books come to the notice of the officer, he can ask the person to furnish further details. Moreover, he can also ask for photographs and video recordings of the marriage to check your claims. The tax laws are very strict in these areas and there is a heavy penalty.
Lastly, these gifts should be given voluntarily. Any demand for gifts will come under the Anti-Dowry Laws in India. The Dowry Prohibition Act, 1961 prohibits the giving and receiving of dowry. Dowry can be anything like property, goods, or cash given by parents of either party in connection with marriage.
If the general gifts are received from friends and they cross the limit of Rs. 50,000 then it is taxable as per the slab. Whereas gifts on the occasion of marriage are not taxable under the Income Tax Act. They are exempted from tax if given by immediate family members and friends.
CS Urvashi Jain is an associate member of the Institute of Company Secretaries of India. Her expertise, inter-alia, is in regulatory approvals, licenses, registrations for any organization set up in India. She posse’s good exposure to compliance management system, legal due diligence, drafting and vetting of various legal agreements. She has good command in drafting manuals, blogs, guides, interpretations and providing opinions on the different core areas of companies act, intellectual properties and taxation.
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