As the wedding season draws near, the exchange of gifts becomes an integral part of celebrations. Amidst the joy, it's crucial to understand the nuances of gift taxation. For starters, Section 56 (2) of the Income-tax, 1961 covers the taxation of gifts received from anyone and at any occasion.
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According to the Act, gifts received by an individual during their wedding are not taxable. This exemption encompasses items such as jewellery, properties, cash, stocks, and more. Section 56 of the Income Tax Act explicitly exempts these gifts from taxation.
While the gifts themselves remain untaxed, any subsequent income stemming from these presents holds taxable status. For instance, if a couple receives property as a wedding gift and rents it out, the rental earnings are taxable.
But there are prerequisites for these exemptions. Gifts must be received explicitly on the occasion of marriage, excluding engagements or other ceremonies. Moreover, the gifts must directly reach the individual or the couple, excluding any other family member. Failure to meet these criteria renders gifts exceeding ₹50,000 taxable.
Preserving records of gifts and their values during weddings serves as a safeguard. This practice, coupled with capturing moments of gift exchanges, aids in potential future scrutiny by tax authorities. Lack of genuine proof of an item being a wedding gift might result in hefty fines or penalties.
It's critical to note that exemptions only apply to gifts received from individuals. Gifts from companies or other entities are taxable, adding their value to the recipient's income.
Furthermore, while vehicles received as wedding gifts might initially evade taxes, any subsequent sale or commercial use, such as leasing it as a taxi, incurs taxable obligations.
Here's a look at other exemptions of gift tax:
| Category of donee (recipient of gift) | Category of donor | Occasion covered |
| Individual (It may be relevant to note here that while a gift from a defined relative is not taxable for the donee, income from such gifts may in some cases taxable in the hands of the donor itself – For example, clubbing provisions, deemed owner concept in the house property, etc) | Relative – spouse, brother and sister of self and spouse, brother or sister of parents or parents-in-law, any lineal ascendant or descendant of self or spouse, spouse of any of the relatives mentioned here. | NA |
| Individual | Any person | Marriage of Individual |
| Any person | Any person | Under a will or by way of inheritance |
| Any person | Individual | In contemplation of death of donor or payer |
| Any person | Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board | NA |
| Any person | from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to Section 10(23C) | NA |
| Any person | Any charitable or religious trust registered under section 12A or section 12AA | NA |
| Any fund or trust or institution or any university or other educational institution or any hospital or other medical institution established for charitable/religious/educational /philanthropic purpose and approved by the prescribed authority. | Any person | NA |
| Members of HUF | HUF | Any distribution of capital assets on total or partial partition of a HUF |
| Trust created or established solely for the benefit of the relative of the Individual | Individual | NA |
(Source: Clear)
(Edited by : Amrita)
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