There are multiple occasions where you may give or receive financial gifts to family, and India’s Income-Tax laws have provisions that allow such transactions between family members to be exempted from taxes. However, in order to avoid misuse of “gifts” for tax evasion, the laws also prescribe declaration of such transfers and gifts in your income tax returns (ITR) while filing your taxes.
What are financial gifts, transfers?
In India, you are allowed to transfer assets (gold, property), cash, mutual fund units, and equity shares to family as gift, which is considered to be tax-free subject to certain terms. Here, to qualify for exemption, the recipient must be family.
Further, for gifts or transfers to third party recipients, all transfers over ₹50,000 in a financial year are subject to taxation for the full amount.
- The gift must be declared under Section 56(2)(x) of the Income-Tax Act (ITA). On your ITR form this will come the head “Income from Other Sources.”
- Further, for cash gifts from employers, this is considered under Salaries head; while gift in kind will be taxable if the value exceeds ₹50,000.
How to disclose gifts in ITR?
Disclosure of gifts must be done under Section 56(2)(x) by the recipient in Schedule OS of your ITR 2 or 3.
What is Section 56(2)(x) of ITA?
Section 56 of the ITA oversees taxation of Income from Other Sources (i.e. dividends, lottery, income from securities, life insurance maturity, gifts, deeds, etc.) that can’t be categorised under other heads such as capital gains, salary or rent.
Within this, Section 56(2)(x) deals movable and immovable gifts, that are taxable unless received from relatives or on special occasions (e.g. marriage, inheritance).
- Gifts received under a will or by way of inheritance and gifts received in contemplation of the death of the donor (for example, a terminally ill person anticipating death in the near future) are also tax-free.
- Sale of movable property and personal effects other than shares and securities is not taxable. This includes art, bullion, collections, furniture, jewellery, sculptures, and vehicles, etc.
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