Definition of “relative”
As per the Income Tax Act, the term ‘relative’ includes spouse, sibling, sibling of spouse, sibling of parent, direct ascendant or descendant of the person or spouse and spouse of direct ascendant or descendant. Gifts to such relatives are exempt from tax under Section 56(2) of the Income Tax Act.Types of assets for gifts
Checkout: While cash gifts are common, you can use bank transfers for larger amounts.
Property: Gift deeds for land/buildings must be executed and registered.
Movable assets: This includes gold, jewelry, stocks, bonds and other financial instruments. A transfer document or a deed of gift is recommended.
Insurance policies: These can be given away by transferring ownership.
Deed of gift
A gift deed is a legal document that records the transfer of an asset from the donor to the donee without any consideration. It should contain details of the donor, donee and the asset being gifted. In the case of immovable property, the gift deed must be registered with the sub-registrar and requires payment of stamp duty. The donee must accept the gift during the lifetime of the donor. The gift deed should be signed by two witnesses.Tax implications
Gifts received from certain relatives are exempt from income tax. Gifts to non-relatives exceeding Rs 50,000 are taxable. However, any income from the gifted property, such as rental income or dividends, is subject to tax liability of the recipient.
Points to note
- Keep all documents related to the donation, especially transfer receipts and donation deeds.
- To ensure compliance with all legal requirements and tax nuances, it is advisable to seek professional legal and financial advice.
Content courtesy of Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
