Tax queries: Kanu Doshi

I understand that due to recent changes in the law, all gifts are now taxable. I have the following questions:

Who has to pay this tax? Is it the donor or the recipient? What is the quantum of the tax? Is there any basic limit in excess of which this levy is to be paid? Are there any exemptions? Is gift in kind also taxable?

Divya Vasantharajan, Mulund, Mumbai

Let us address each of your questions.
Tax payer:
When introduced in 1958, the tax was payable by the donor on the market value of the asset or the gifted amount.

In 2004, P Chidambaram, the then finance minister, revived the tax, but this time it was payable by the recipient. It was treated as the recepient’s income.

Quantum of tax:
From September 1, 2004, a recipient has to include the gifted amount in his total income while paying income tax.Basic limit:

There was a basic exemption of Rs 25,000 per year, which has been raised to Rs 50,000 per year. In other words, gifts with aggregate value of less than Rs 50,000 do not attract any tax in the hands of the recipient.

Exemption:
Gifts from close relatives are fully exempt from this provision and, hence, do not attract any tax in the hands of the recipient.

Similarly, all gifts on marriage or under a will are exempt, including even from non-relatives, without any upper limit.

Gift in kind also taxable:
A close reading of the change of the tax burden from the donor to the recipient would have revealed that the concept of taxing gifts as income of the recipient covered only “sum of money,” So, “gifts in kind” remained outside the purview of taxation.

General:
With effect from October 1, 2009, all gifts, whether sum of money or in kind, are taxed as income in the hands of the recipient.

However, a gift (sum of money as well as in kind) of any amount or value to close relatives continues to be outside the ambit of taxation in the hands of the recipient.

Similarly, even now (after October 1, 2009), the basic exemption of Rs 50,000 per year in respect of all gifts (in money or money’s worth) continues. This basic exemption of Rs 50,000 is to be computed by totalling all gifts received by an individual from all persons (non-relatives) in a financial year. Thus, say A receives a gift by cheque of Rs 35,000 from B (non-relative) on October 7, 2009, and yet another gift of shares worth Rs 30,000 from C (non-relative) on November 5, 2009. He will have to include Rs 15,000 (35,000 + 30,000 – 50,000) in his income of, say Rs 500,000, and pay income tax on Rs 515,000.

“Relative” defined:
Spouse of the individual, brother or sister of the individual, brother or sister of the spouse of the individual, brother or sister of either of the parents of the individual, any lineal ascendant or descendant of the individual, any lineal ascendant or descendant of the spouse of the individual, spouse of the person referred to in the clauses (ii) to (vi).

Kanu Doshi is a senior chartered accountant and dean of finance at Welingkar Institute of Management, Mumbai. Send your queries at yourmoney@bsmail.in