Income Tax on marriage gifts: Whether Taxable or not?

Introduction:

It is a part of the customs of the Indian culture to exchange gifts (in cash or in-kind) on the occasion of the marriage. Gifts are taxable under Income Tax Act but section 56 of the Income Tax Act allows exemption to such wedding gifts received by the newly-wed couple on the occasion of their marriage. This article covers the tax implications of such wedding gifts received.

What is the threshold limit of wedding gifts for exemption from Income Tax?

Section 56 of the Income Tax Act, 1961 prescribes a threshold limit of Rs. 50,000 in aggregate in a year for taxing gifts. If any individual is in receipt of gifts in excess of Rs. 50,000 during a financial year, the entire amount of gift becomes taxable in the income tax return. But this is not applicable in the case of wedding gifts.

Gifts received by the bride or groom on the occasion of their marriage are entirely exempted from tax. It does not matter whether gifts are received in cash or in kind. It also does not matter whether gifts are received from relatives, friends or any other person. The gift can be in the form of immovable property, jewellery, vehicle, household article, stocks or cash.

Are gifts received by persons other than bride or groom on the occasion of marriage exempt from tax?

Exemption from tax on gifts is available only to the bride or the groom. If gifts are received by any other person on the occasion of the marriage event, no such exemption is available to that other person. It is customary in India that parents or other relatives of the bride or groom are also offered gifts on the occasion of a wedding event as a part of various ceremonies.

These gifts are not eligible for exemption and will be included in the total income of the person receiving the gift (donee) if the aggregate amount of gifts received by him/her during that financial year exceeds Rs. 50,000. Please note that the benefit of exemption under section 56 of the Act is available only to the bride/ groom and not to their relatives.

When is gift exempt as per section 56 of the Income Tax Act?

Section 56 allows exemption from tax in case of gifts received in aggregate of up to Rs. 50,000 during a financial year. However, in the following cases, gifts are fully exempted from tax without any threshold limit:

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Are clubbing provisions applicable in the case of gifts received by a bride from her father-in-law or mother-in-law?

Section 64(1)(vi) provides the clubbing provisions where any asset is transferred directly or indirectly to daughter-in-law for inadequate consideration. It should be noted that gifts received by bride or groom are fully tax-free in their hands on the occasion of their marriage but section 64(1)(vi) might come into play in certain cases.

Section 64 in no way affects exemption to gifts received by the bride or groom. But it states that income arising from the gift (inadequate consideration) received by a daughter-in-law from her father-in-law or mother-in-law shall be clubbed with the income of the father-in-law or mother-in-law, as the case may be. For example, the Father-in-law gifts a fixed deposit of Rs. 10 lakhs (6% interest) to her daughter-in-law on the occasion of marriage. The gift so received by the bride is fully exempted from tax but interest income of Rs. 60,000 every year shall be clubbed in the total income of father-in-law owing to the provisions of section 64.

However, there can be an interesting situation in this case. Suppose, father-in-law gifts the same fixed deposit of Rs. 10 lakhs to her daughter-in-law on the engagement or Roka ceremony. In this situation, the gift can not be said to be conferred on the occasion of the marriage. Therefore, such gift will become taxable in the hand of the receiver as it breaches the threshold limit of Rs. 50,000. So, this is not advisable in any manner. But further to note, it will not attract clubbing provisions as at the time of the gift, the female (bride) cannot be considered as the daughter-in-law of the person giving the gift.

Under which head gifts are shown in the Income Tax Return?

We have already discussed that gifts received on the occasion of the marriage are fully exempted from tax. But other gifts are taxable subject to a threshold limit of Rs. 50,000. Such taxable gifts are shown under “Income from Other Sources” while filing Income Tax Return online.

Are gifts received on the occasion of the birthday or any other ceremonies exempt from tax?

Gifts received on the occasion of the birthday or any other ceremonies are not exempted from tax. The exemption list under section 56 has no mention of any of these ceremonies except marriages. Therefore, any gifts received on any such occasion except marriage are fully taxable subject to a threshold limit of Rs. 50,000.

What are the precautions to be taken while accepting marriage gifts?

We have discussed that gifts received on the occasion of the marriage are altogether exempted from tax. But certain precautions should be taken from the Income Tax point of view while accepting such gifts, especially high-value gifts. A simple thing you should do is to make a list of persons with addresses who have given gifts in cash and keep it in your record. A separate list should be prepared for the gifts received in the form of jewellery or vehicle or immovable property or any other valuable item.

Make proper entries in the books of accounts on the date of marriage giving proper mention of the donor. If the amount of gifts received on the occasion of marriage is high, the Income Tax Officer may call upon any of the donors to appear before him and assess the genuineness of the gift. In case you are not able to prove the genuineness of the gift, you may be liable to pay hefty tax @ 60% + surcharge instead of the same being taxed at the slab rate applicable to you. Further, you will be liable to pay interest and penalty. So, plan carefully while using marriage gifts as a tax planning mechanism. It is also suggested that a proper record of expenditure incurred in the marriage should also be kept ready for being produced before the Assessing Officer so that a high volume of gifts could be justified.

Disclaimer: The above article is meant for educational purposes only and has no legal value. Readers are requested to act diligently and under consultation with any professional before applying the information contained in this article.

About Author: The article is written by CA Naveen Goyal. He is practising in the field of direct taxation (Income Tax) and indirect taxation (GST) for the last 15 years. He has a deep interest in writing good stuff on taxation issues on various platforms. He can be reached at: ca.naveen80@gmail.com