Saturday, February 20, 2010


"Can I gift my House to my daughter" , asked one of the worried father. He learnt that the Gift tax rules have been changed and now Government intend to charge high tax on the the hand of the recipient of the gift."My daughter is not earning as much. where from would she pay tax on an immovable property" ? The latest gift tax amendment has crated tension in the mind of lot of senior citizens. I would like to assure that gift from blood relations are exempt from the tax even now .The Government of India amended the Gift tax only because the provision was misused by unscrupulous persons.

High Value Gifts were a safe haven to show one’s love to others financially. Now the tax man has tightened (putting it mildly) the strings attached to gifts. In fact the rule has become so tight that it may be the end for all high value gifts in India.

Since 1998, there is no Gift Tax per say in India. The gift is now added to the income of the receiver and is taxed accordingly. Earlier (prior to October 1st 2009), gifts in kind (a car or a house) were not considered at the cash value. Many rich and powerful people used to request ,some of their friends and associates, to give expensive gift during their daughter's marriage in lieu of high favours.At that time all gifts received at the time of marriage were exempt from tax. The gifts could have been from anyone and of any type. This made very high value gifts the norm at the marriages of very powerful and rich people. The taxman was hoodwinked by making marriages occasions for large scale conversion of illegal money (black money) into legal gifts. This system was going on in rampant ways.The government knew it but had no courage to stop it. ultimately ManMohanSingh Government mustered enough courage and made provision to stop it, with a new rule.

What is the new rule of the day? The change in the rule related to gifts now says that the receiver has to pay tax for receiving any gift valued at Rs.50,000 and more. The 'any gift' clause means that not only cash but all gifts of any value. So if someone receives a gift of a house worth Rs.30 lakhs, then he/she is automatically in the highest income bracket and has to pay 30% + surcharge on value of the house as tax (close to Rs.10 lakhs in this case). It ihas become vry diffcult for a young girls with limited mens to pay so high income tyax if she is not very rich officially.
The rule thus effectively prevents money laundering in the guise of high value gifts.

The question now comes whether gift given by relatives during marriages would also attract so much taxes? the genuine people donot have to worry at all.There is exemption for gifts received from certain people. The gifts that one receives from relatives on the occasion of marriage, the gifts receives from parents and grand parents, the gift received by a daughter-in-law from her parents-in-law, and gifts received by way of a will and inheritance are exempt.
But here is a catch. To stop the evil practice of dowary demand The gifts received by a son-in-law from his parent-in-law will be taxed. would it bring done dowry demand. Very unlikely, sid a social scientist.According to him the demand would stay not in white but in coloured. The father inlaws would remain as vulnerable as they were before. A good provision has been made. Children living abroad can freely send money to their old parents with out attracting any gift tax in the hands of their parents. Due to existance of this provision an NRI can gift to his/her parents in India from their NRE account without their parents suffering any tax.

An excellent provision have been made so that none can circumvent the rules. The gifts received in the names of one's minor children will be clubbed with the parents' income for taxation purpose. Also the taxman is very alert in saying that, in case of both parents having income, clubbing will be done with that parent who is earning more. So one cannot hide under the cover of their minor child(ren) receiving the gifts. For a long time non relatives were sending gift in the name of the minor children and most of the time it was clubbed with the income of mother so that minimal tax is paid.With the incorporation of the new provision the loophole have been plugged.

Not only gifts, but any real estate deal done for values lower than the state governments fixed rates, will also be taxed. Here the tax will be charged on the difference between the state government’s rate and purchase price. The tax needs to be paid by the buyer of the property.

According to a taxation expert the tightening of the rules related to gift tax will curb money laundering to a great extent. However it does protect genuine gifts from relatives and loved ones. Several guises used earlier to cover up transactions as gifts are now taxable.


Gautam Prasad Baroowah
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