Before we even start on discussing lets just salute the brilliant folks manning the Indian Finance Ministry – They have pulled out another rabbit from the hat which will fill the government coffers in the form of taxes.
Ironically, the Direct tax code introduced a while back was hugely applauded for it’s AAM Admi friendliness. What with increasing the minimum tax slabs and the likes. But, the government kept its side of the bargain by taking away Home Loan from the tax exemption bracket and the likes. So, the Indian citizen was always left at crossroads.
Starting October 1st, and you better watch out for the gifts that you are receive (or dream or receiving).
Yes, the government has made amends to the Gift Tax which requires the taxpayer to pay a tax for accepting any gifts worth Rs 50,000 or above. Yes, you heard me right. So, if you are awaiting that expensive gift from your U.S returning friend, better calculate the tax you will subjected to – The tax liability will be calculated at the total price and not the balance. So, do your math or you might end up paying dearly for receiving a gift.
For example: For a Rs 5,00,000 car received from a friend, the receiver would have to pay tax up to Rs 1,50,000 (flat 30%) , if his or her income falls in the highest tax bracket of 30 per cent.
All is not lost however. Here are some of the fine prints which can help you decide if accepting a gift is going to be an economically viable idea after all.
- It is no longer the giver of gifts who will be taxed, but the one who receives it will be!
- The only times when you are exempt from these rules are if the gifts are made by relatives, exchanged during marriage ceremonies or fall to your lot under the prescriptions of a will.
- The definition of gifts under consideration goes beyond the scope of cash to include non cash assets like property, shares and securities etc.
- If your total gifts exceed the value of Rs 50, 000, then you have to pay tax on the entire amount and not simply on the difference
It is equally to understand who are considered your relatives under the Gift Tax. According to Section 56 of the I-T Act, a relative would include:
Spouse of individual; Brother or sister of individual; Brother or sister of spouse of individual; Brother or sister of either of parents of individual; Any lineal ascendant or descendant of individual; Any lineal ascendant or descendant of spouse of individual; Spouse of persons referred to above.
For more detail, head over to the national Income Tax Site (Gift tax) section
Now you will have to think twice even while receiving gifts :) what’s your take on this new tax policy?
[This post has been written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]