The income tax act provides excellent opportunity for tax planning and also for creating wealth, by way of exemption granted with respect to gifts received from relatives and also from others at the time of special occasions. At times the same can create problem for both the donor and donee, if proper is not taken at the time of taking such gifts. We tried to bring out some important points with regard to gifts received and given:

Onus on recipient to prove the genuiness of gifts/ can be treated as cash credit u/s 68

The onus is put on the recipient of gifts to prove the genuiness of the gifts, by establishing the identity, creditworthiness and financial capacity of the donor of the gift as received from relatives or the gifts received at the time of marriage

If one fails to discharge the primary onus of such proof, the assessing officer will be within his powers to treat such amount of gift as income of the assessee under section 68 of the income tax act.

Thus, the recipient of gifts should make a list stating the amount and mode of gift received from each person, their names with full addresses, their PAN (if available), certificate or affidavit in support of gift.

Gifts received on marriage related functions (engagement /receptions)

Any sum of money received on the occasion of the marriage of the individuals shall not be taxed but that does not specifically exempts the gifts received at the time of other small functions related to marriage.

However, taking into consideration the terminology used in the act by the government that it “the occasion of the marriage” , the department should not take such stringent stand, and to eliminate the doubts, the government should bring out a notification in this regard.

Limit on the amount of gifts received on the occasion of marriage from non-relatives, which is exempt

There are no monetary limits as prescribed for the amount of gifts received on the occasion of marriage from non-relatives for exemption under the income tax act, otherwise Rs. 50, 000 prescribed.

It is to be noted that for relatives, there is no monetary limit prescribed for gifts.

Individual receives Rs. 40, 000 each from three different friends in a financial year

It is the aggregate amount which is important to determine the taxability, i.e. in the instant case, as the aggregate amount (Rs.40000*3) Rs. 120,000 exceeds Rs. 50,000, and will be taxed as income from other sources.

Interest Free Loan as Gifts

Money received and paid with the intention of re-payment can not be treated as gifts received, even if given as interest free loan.

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