Q. I recently received a cash gift of Rs. 1 lakh from my in-laws during my wedding. My relatives told me that I may have to pay tax on this. I am confused. Please help me understand how gift tax is imposed. Nistha Agarwal
A. Short answer: cash gifted to you during your wedding, weather by your relatives or other persons, is exempt from taxation. So enjoy this gift without paying any taxes.
In other situations, the income tax laws prescribe a gift tax if the total amount received as gifts in a financial year exceeds Rs. 50,000. You will have to pay tax as per your income tax slab and it will be taxed under the head ‘Income from other sources’. Section 56(2)(x) of the Income Tax Act, 1961 deals with the provision related to gift tax.
So an individual will have to pay tax for the gift money received above Rs. 50,000 in a year through cheque, cash or a draft.
Barring gifts and cash received on your wedding, the law makes one other exception: gifts received from relatives are exempt from tax. In this scenario, following persons would be considered as relative:
(a) Spouse of the individual;
(b) Brother or sister of the individual;
(c) Brother or sister of the spouse of the individual;
(d) Brother or sister of either of the parents of the individual;
(e) Any lineal ascendant or descendent of the individual;
(f) Any lineal ascendant or descendent of the spouse of the individual;
(g) Spouse of the persons referred to in (b) to (f).
So coming to your question, you will not be required to pay taxes on cash gift received as it has been given to you by your in-laws. However, in another circumstance, if the same money was gifted to you by someone other than your relatives, taxes may be applicable.
You will be required to declare the same in your income tax return filing if your income is above the basic exemption limit of Rs. 2.5 lakh and if your age is below 60. This will help you keep track of all incomes received in a financial year to deal with any future scrutiny even if you are not required to pay tax on it. It is also advisable to keep any documents pertaining to expensive gifts handy, just in case there’s a tax scrutiny in the future.
Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil. The writer is CEO, BankBazaar.com, an online marketplace for loans and credit cards.