MARRIAGE GIFTS AND TAXATION

Taxation of Gifts in India: General Provisions

The donor (giver of the gift) was obligated to pay gift tax on the value of the gift exceeding Rs. 30,000/- before the Gift Tax Act was repealed in 1998. Following the abolition, neither the recipient nor the donor had to pay any taxes. This loophole was used to the point where the government had to enact legislation to tax presents in the hands of recipients if the total value of all gifts received in a given year surpassed a specific threshold. This maximum is currently set at fifty thousand rupees. It is the aggregate value of all the gifts received during the year and not the value of an individual gift which is to be taken into account for determining taxability of the gifts.

Specific provisions applicable to marriage gifts

While allowing for the taxation of gifts in the hands of the recipient, the legislators made a few exceptions. One of the exceptions under the law is for wedding gifts. Are all of these gifts exempt from taxation because of the marital exception? NO! The exception applies solely to the couple getting married, not to all of their relatives. The couple's gifts are completely tax-free and have no upper limit. To qualify for this exemption, the gifts do not have to come from family members.
Thus, all gifts received by the bride and groom, regardless of value, are tax-free in their possession, but other relatives must include the full value of the gifts in their income, whether received in cash or in kind, if the total value of all gifts received during the year, including these gifts, exceeds fifty thousand rupees. However, gifts received by one relative from another relative are fully tax-free in case of certain specified relatives irrespective of any occasion.

Clubbing provisions

Though presents received on the day of the wedding are tax-free in the hands of the bride and groom, clubbing limits exist if the gifts are from certain specified relatives. A daughter-in-income law's received as a gift from her father-in-law or mother-in-law must be added to the income of the in-law who gave the gift. However, in case of gifts given to daughter in law before marriage are outside of the clubbing provisions but the threshold of fifty thousand rupees will apply as she is a non-relative till she gets married so gift to daughter in law by parents in law is not advised. It's worth noting that the clubbing provisions will apply to the value of the gift even if the gifted asset changes its form. So for example in case jewellery is gifted to daughter in law by parents in law, though fully tax free in the hands of the bride at the time of marriage but the capital gains if any realized at the time of sale will have to be clubbed with the income of the donor as and when the jewellery is sold in future.

Precautions to Take When Accepting Wedding Gifts

• Though gifts received on the occasion of a marriage are completely tax-free, you must exercise caution when entering them into your records, especially if the gifts are of huge value.
• So in case you have shown some amounts or assets as having been received at the occasion of your marriage, you will have to furnish the details of all the persons from whom you have received the gifts. Moreover, the tax official may call the person to appear before him and may try to find about genuineness of the gift. The tax law provides that if you are unable to provide a reasonable explanation for any item found credited in your books of accounts, the tax department would apply a flat tax of 60% + surcharge rather than taxing the asset at the applicable slab rate. In this case, you will be required to pay interest and penalties as a bonus.
• In case the gifts received and recorded in the books come to the notice of the tax official during assessment preceding the tax officials can ask you to furnish the details of marriage expenses incurred with the details of the person who had footed the bill. Furthermore, in order to assess the scale of the wedding ceremony, the officer can request videotaping and photography of various wedding functions. So take a step back and consider your options before taking a risk.