You can use ‘gift’ as a tool to save taxes. Read on to know what all you need to do while using ‘gift’ as a tax saving tool.
With financial year coming to an end soon, people are exploring ways to save taxes. While there are popular ways like investment under Section 80 C, Section 80 D to save taxes, another interesting way can be using the ‘gift’ tool. Gift here includes movable and immovable property, precious metal, cash amount, cheque etc.
How Much Gift Amount Is Exempted From Tax
If the value of the gift is less than Rs 50,000 in a financial year, then it is considered as tax-free in the receiver’s hand. It is important to note here that if the amount of gift exceeds Rs 50,000 in a financial year, then the entire gift amount becomes taxable. For example, if a person received a sum of Rs 20,000 from A, Rs 29,000 gift from B and Rs 5,000 from C, then the total gift amount, i.e. Rs 54,000 will become taxable as it exceeds the limit of Rs 50,000.
Gift From Relatives
Gift from relatives such as parents, spouse, siblings of spouse, and other eligible donors are completely exempt from tax. There is no upper limit to claim an exemption for such gifts. For example, a husband gifts Rs 1 lakh to his wife, then that Rs 1 lakh will not be taxable in the hand of the wife, but the husband being the donor will be liable to tax on that money. If wife further invests that Rs 1 lakh and earn an income on it, then that income will be clubbed with the husband’s income and it will be taxed as per his applicable slab rate. However, if the wife invests that money to earn non-taxable income, then such income will remain exempt from tax. Instead of giving cash, if you gift gold or precious metal jewellery to your wife, then there will be no income generated from it, so no tax will be applicable.
Gift Received During Marriage
If the gifts are received during your wedding, then they are also eligible to get the tax exemption. Bride and groom both are eligible to claim the exemption to the extent they have received gifts in their individual name. It is important that gifts are received close to the marriage date. Bride and groom must take the benefits of this rule by claiming the exemption for entire gift amount. It is important to keep the records of the gifts received during the occasion, especially for valuable items such as jewellery and precious metals.
Gift From Employer
Gift from employer to its employee is exempt from tax to the extent of Rs 5000 and if the gift value exceeds Rs 5000 then the entire amount is considered as taxable salary.
Gift Received Through A Will
Gift received through a will or inherited gift or gift passed to the receiver after the death of the donor are exempt from tax without any maximum ceiling amount.
Gift To Parents
Income generated on the amount given as gifts to parents are not clubbed with the donor, but such income is taxed as per applicable tax slab on your parents. So, if you want to save tax, then gift by investing an amount that can earn high returns. For example, you fall in tax slab of 30% and you want to invest Rs 30 lakh in an asset class that offers a return of 10% p.a. In this case, you’ll earn an income of Rs 3 lakh in a year and it will be taxed at 30%, i.e. you’ll be required to pay a tax of Rs 90,000. If you gift the entire amount (Rs 30 lakh) to your parents and they invest it in their individual capacity, then both your parents will get an income of Rs 1.5 lakh individually (below tax slab), and they will not be required to pay any tax on it. Just keep in mind that your parent’s total income, i.e. including own income and income from your gifted money is lower than the taxable slab.
Exercise caution when you use a gift as a tool to save the income tax. If you commit any mistake in understanding the provision, then it could result in clubbing of income and you may need to pay tax on such transaction. You must discuss with your tax advisor/CA before using the ‘gifting’ provision to save the tax.