Introduction
- In accordance with the Taxation policy, which has been drafted and amended from time to time, a salaried person is liable to pay a lot of taxes during his lifetime; from a matchbox to home, almost everything is taxed. Benjamin Franklin once said, ” In this world, nothing can be said to be certain except death and taxes.
- So a question always arises every now and then are the gifts from parents taxable, or what payments have to be made under a gift from parents’ tax liability? So for parents, a question arises of how they can pass over their wealth to the next generations and generations thereafter and what will be the legal implications of the same, and how it can be done without implying hefty taxes or ancillary fees on them.
- To answer that question, we have to understand the concept of a gift deed. A gift deed is done when a person transfers ownership of any movable or immovable property without paying any consideration to the other party. As the name suggests, it’s a gift from one party to another party.
- In legal terms, the person who is gifting is called a Donor, and the person who receives these gifts is called Donee; there are tax implications on these gift deeds with some exceptions. Herein let us make you aware and answer the question of whether Gifts from parents are taxable or not.
Gifts From Parents Taxable or not
Any gift deeds are taxable with certain exceptions which have been provided to the parties under the Income Tax Act 1961, one of them being any gift from parents’ taxability.
So the simple answer is that any gift from Parents is tax avoidable; this actually means that any sum of money which has been provided to any party falls under the category of Gift from parents tax or from any of your relatives relative, which shall only include a certain class of relative fall under this gracious exception which has been provided under the income tax act.
Relative that falls under are as follows-
- Spouse of the Donee.
- Brother and Sister of the Donee.
- Brother-in-law and sister-in-law of the Donee.
- Brother and Sister of the Donee’s Parents,
- any lineal ascendant or descendant of the Donee.
- Any lineal ascendant or descendant of the wife of the Donee.
- Spouses of any one of the above-mentioned relatives too.
Any gift which is received by the above-mentioned people isn’t taxable under the Indian legislation, which subsequently means that gifts from parents are tax avoidable and pertain to no liability of payment of tax, but these can only apply to gifts of moveable property such as cash, jewelry, shares, bonds, etc.
These transactions have to be done very carefully, and the drafting of the same shall also require very vigilant minds; therefore, it is always advisable to take advice from any experienced lawyer or online legal advice, which shall be in the best interest of both the parties at least in cases of a gift from parents tax avoidance.
Tax exemption other than Gift from parents’ taxability
There are some other exceptions under which any gift received is non-taxable via a gift deed in blood relations or in other cases, such as follows -:
- Marriages- Any gift received in marriage by the groom or the bride by way of any gift deed or gift from parents tax avoidable or any other person is exempted from any sort of tax liability. This provision is a great relief as marriages are big functions, and people generally give money or other expensive items and even gifts from parents for tax avoidance; therefore, providing a tax exception in marriages is a great relief otherwise, one would have been levied with high taxes and ancillary costs.
For example: If Amish and Manisha are getting married, then any gift which is received by them, be it by way of a gift deed or gift from parents taxable the same would not be taxable under the Income Tax Act, 1961.
- Via a will or Inheritance- Any gift from parents tax exempt which is provided to them via a will, more evident in the case of moveable assets as these are exempt from payment of taxes; otherwise, in case of an immovable asset, one has to pay some ancillary fees to register the property in his/her name; therefore any gift from parents tax via a will is not taxable.
- In the event of Death- Any gift which is received in contemplation of the death of the payee has also been exempted from tax under the Income-tax act 1961; therefore, in the demise of the payee, taxes are exempted for the donee.
- Via a trust- One of the most convenient ways to receive a gift from parents tax avoidance is that your parent can open a trust and register the trust in accordance with the rules under the Indian trust act; thereafter, all their assets can be transferred to that trust, which in furtherance then can transfer the assets in your name. This method would avoid any payment on gifts from parents’ tax.
- Via a foundation, fund, or educational institution- Any gift that Donee receives from any fund or institution, be it in the way of a gift from parents’ tax or honorary gifts, is also exempted from tax.
Conclusion
There is a very fine line between tax avoidance and tax evasion; one has to be an expert in this situation to realize and stay within the limits of tax avoidance, as tax evasion is a punishable offense, and hefty fees could be imposed on the person who has crossed the line of tax avoidance.
Therefore it is always advisable that before entering into such complicated transactions such as gifts from parents, taxability or any other form of transaction passing down your wealth to the next generation is a question which shall be handled through professionals, and one shall always be aware of the implications of every move; therefore legal advice or online legal advice shall always be consulted first and in our opinion shall always be involved in such transactions.
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