Gift tax for gifts between relatives?

[rasi]

Hi guys,

I guess this might have been answered earlier but couldn't find the link.

We all know that gifts from NRIs are not taxable at all.

How about gifts between blood relatives who are India residents?

My friend was "damn" sure that once a person becomes Indian resident, all gifts between him and his relatives are subject to tax if it exceeds Rs 25.000 /-

I was sure this tax was applicable to only non-relatives or relatives not within the same family ( like cousin, uncle etc).

Could someone please clarify if they are taxable for even close family members( who are both adults meaning not between parent and child)?

To be precise, are gifts between parents and adult married children subject to gift tax ? Betwen siblings?

Thanks

[rasi]

My question is for tax by Indian govt.

[bmukherji]

Rasi
IT be worth your effort to go thru the following link:
http://www.incometaxindia.gov.in/Acts/GIFT%20TAX%20ACT/5.asp

[Bobus]

Gift tax has been abolished in India for gifts made after Oct 1, 1998 - so for gifts made after this date, it does not matter whether donor is non-resident of India or resident of India - there aint no gift tax.

However, per Sec 56 of Indian IT Act, gifts (in excess of 50K rupees in an Indian financial year) received by a person from April 1, 2006 onwards is added to the taxable income of the recipient (not the donor). It does not matter whether donor is resident of India or not. This provision does not apply in certain cases, and a non-exhaustive list of these cases follows:

(a) where gift is from a "relative" of the recipient.
(b) where gift has been received on the occasion of the wedding of the recipient

The following are "relatives" per Sec 56:

(i) Spouse of recipient
(ii) Brother/Sister of recipient
(iii) Brother/Sister of spouse of recipient
(iv) Brother/Sister of either parent of the recipient
(v) any lineal ascendant or descendant of the recipient
(vi) any lineal ascendant or descendant of the spouse of the recipient
(vii) Spouse of person in (ii) thru (vi) above

A cousin is not a relative.

[RAJESH H DHRUVA]

Dear Rasi,
1. Bobus has already provided a detailed reply. I may add that gifts between blood relatives who may be residents of India or donor being non-resident and donee being resident are not covered by the provisions of taxablility of gifts as deemed income.
2. Gifts by parents to married children are exempt.
.02 Thus gifts between siblings are also exempt.
3. Gifts between parents themselves, i.e. by husband to wife or vice versa although exempt are covered by clubbing provisions.

Dear Bobus,
1. Said provision of treating and including gifts from un-related donor in the taxable income of the donee has come into effect since 1st September 2004.
2. Initially gifts up to Rs.25,000/- were exempted which has been increased to Rs.50,000/- w.e.f. 1st April 2006.

Best wishes.
RAJESH H DHRUVA

[Bobus]

1. Said provision of treating and including gifts from un-related donor in the taxable income of the donee has come into effect since 1st September 2004.
2. Initially gifts up to Rs.25,000/- were exempted which has been increased to Rs.50,000/- w.e.f. 1st April 2006. [/quote]

Thanks for adding the info. I did not talk about the 25K limit for receipts during the period Sept 1, 2004 to March 31, 2006 since the original postor seemed interested in tax consequences of gifts / receipts that are yet to be made.

I may add that gifts between blood relatives who may be residents of India or donor being non-resident and donee being resident are not covered by the provisions of taxablility of gifts as deemed income. [/quote]

Are you saying that where donor is non-resident and donee resident, the gift is not taxable under Sec 56 even where the two are not relatives? Or are you refering to a situation where the two are relatives?

My understanding of Sec 56 (read together with Section 5 which defines total scope of income) is as follows:

Where donor is non-resident and donee is ROR and the receipt does not fall under the exceptions (such as relative, on the occasion of wedding, ...) listed in Sec 56 (2)(vi), the income has a non-India source, and is therefore taxable (if it exceeds limit) since recipient is ROR and subject to India tax on global income.

Similarly, where recipient is non-resident and donor is resident of India, the income has source in India and will therefore be taxable since non-resident is subject to India tax on India source income.

Sec 56 does not restrict its scope to where donor is resident - the language of the section has the words "from any person".

Please feel free to let me know what I am missing. Is it your position (where donor is non-resident and donee resident) that the income does not accrue or arise outside India, that Sec 56(2)(vi) is a deeming provision, that it does not deem the income to have accrued / received / arisen in India, and that income deemed to arise outside India is outside the scope of Sec 5?

--------------------------

Section 56(2)(v) and Section 56(2)(vi)

[(v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004 48[but before the 1st day of April, 2006], the whole of such sum :
Provided that this clause shall not apply to any sum of money received
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer; or
49[(e) from any local authority as defined in the Explanation to clause (20) of section 10; or
(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g) from any trust or institution registered under section 12AA.]
Explanation.For the purposes of this clause, relative means
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi);]



50[(vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006, the whole of the aggregate value of such sum:
Provided that this clause shall not apply to any sum of money received
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer; or
(e) from any local authority as defined in the Explanation to clause (20) of section 10; or
(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g) from any trust or institution registered under section 12AA.
Explanation.For the purposes of this clause, relative means
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi).]

[RAJESH H DHRUVA]

At #8 as I could not delete

[RAJESH H DHRUVA]

Dear Bobus,
1. Yes . You hae correctly stated the statutory provisions.
2. I have referred to donor and donee being relatives ; both being residents in India OR donor being non-resident and donee being resident. :
3. I may add that gifts between blood relatives who may be residents of India or donor being non-resident and donee being resident are not covered by the provisions of taxablility of gifts as deemed income.
Best wishes.
RAJESH H DHRUVA

[Bobus]

Rajesh # 8:

Thanks for the clarification that in both cases that you refered to, the donor and donee were relatives.