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Tax implications of a gift

Larissa Fernand

Two questions spring to mind when contemplating a gift. Is a gift taxable in your hands when you are the giver? Is the gift taxable in your hands when you are the receiver?
Good news on both fronts. The answer is 'No'.

The Gift Tax Act has been abolished with effect from October 1, 1998. There is no tax implication on either the giver or the receiver. Go ahead and accept gifts or give them with a clear conscience.

Incidentally, this is applicable both in the case of a gift in cash or kind. So you can even buy your child that car or gift your parents some shares. And neither is there any limit on what the amount, or value of the gift, should be.

The tax implication arises only if the recipient is making some money on this gift. So if you gift your parents some money which they place in a fixed deposit and earn a return, the return is liable to be taxed. Or if you gift your child some shares and he sells them and makes profit, he is liable to tax.

Neither can you claim any tax exemption on the amount that you are gifting. Since the amount given as a gift from the taxable income is merely an application of such income, no tax exemption is available.

Now, if the gift is given to a minor, then under Section 64(1A) of the IT Act, all income that arises or accrues to the minor child shall be clubbed with the income of that parent whose total income is greater. This will go on till the child becomes a major.

In case you are considering transferring some money to your wife's name and then getting her to transfer it back to you to avoid tax, you are barking up the wrong tree. A gift should be done vide an irrevocable deed of transfer. So once you have given it, it's gone. Happy gifting!

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