Before you gift, discover the tax it will attract!
Are you thinking of sharing your wealth with your loved ones by transferring shares or including them in your will? Before you do, you must be aware of the unexpected visitor who may come knocking at the door. Yes, we are talking about ‘tax’.
While you may believe you are giving something out of love, certain gifts can unintentionally attract taxes.
Today we will explore various popular gifting methods and shed light on their tax consequences. This will help you plan your gifts better and ensure your generosity is met with open arms rather than a hefty tax bill.
Let’s begin.
How Are Your Gifts Taxed?
1. Marriage or Inheritance
Gifts received during your wedding or wealth inherited are the only two ways where you can save the most.
In the case of marriage, where gifts received by the couple remain happily tax-exempt. It doesn’t matter if it is cash or belongings. These gifts won’t come with a tax bill.
But, if you receive gifts above Rs 50,000 in a financial year from non-relatives on other occasions, the entire amount will be taxed under income from other sources.
The second case is inheritance. You won’t have to worry about taxes whether you receive money or property through a will.
2. Property Transfer
Let’s say you have two properties, and if you transfer one property under your spouse’s name, the tax laws will consider you as the property owner. As a result, any rental income generated from the property will be taxable in your hands, even though the property is under your spouse’s name.
On the other hand, the receiver must pay taxes if an immovable property is gifted, like jewellery or art, whose market value exceeds Rs 50,000.
But, according to Economic Times, if you gift things like televisions or smartphones, the receiver would fall outside the definition of prescribed movable property under the Income Tax Act. Therefore, gifting such items does not attract any tax implications.
If you decide to transfer shares, ETFs, mutual funds or a portfolio of stocks as a gift, and their current market price exceeds Rs 50,000, it will be considered under income from other sources. The tax on this income should be paid as per the tax slab.
When a recipient decides to sell gifted shares, the income generated from the sale will be subject to taxation as Income from Capital Gains. The tax treatment of these gains will depend on whether they are short-term capital gains (STCG) or long-term capital gains (LTCG).
The holding period is calculated from the date of purchase by the previous owner until the date of sale by the receiver. Similarly, the capital gains will be based on the previous owner’s purchase price.
In conclusion, now that we have learned how much tax gifts attract, making better choices will become easier.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
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