Mukesh Patel.in
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GIFT OF BMW NOT TAXABLE?

With only nine gifts in kind covered in the specified list, you can still enjoy receiving many more tax-free gifts!

Two interesting readers’ queries relating to taxability of gifts as income have been discussed in the write-up today.

TAXABILITY OF GIFTS IN KIND

Query:  I am expecting to receive a BMW car worth Rs.50 lakhs from a dear friend of mine. Would this attract any income-tax liability in my hands?

Reply:  Section 56(2)(vi) of the Income-tax Act as introduced in with effect from 1st April, 2006 had cast income-tax liability in respect of a ‘gift of any sum of money exceeding Rs.50,000’. In view of this clear language, any gift received in kind (not being any sum of money) clearly fell outside the liability for income-tax, irrespective of the value of such gift.

However, as per the provisions of Section 56(2)(vii), introduced with effect  from 1st October, 2009, the market value of nine specified properties as mentioned hereunder, received as a gift by an Individual or HUF, if exceeding Rs.50,000, is liable to be taxed as income from other sources.

  1. Land and building;

  2. Shares and securities;

  3. Jewellery;

  4. Archaeological collections;

  5. Drawings;

  6. Paintings;

  7. Sculptures;

  8. Any work of art;

  9. Bullion.

 Since motor car is not covered in the list of nine specified properties above, you can safely receive the gift of BMW from your friend, notwithstanding the fact that its value is Rs.50 lakhs. Interestingly, a host of other valuables such as cell phones, computers, electronics, furniture, air tickets, hotel vouchers, etc. have also been kept out of the tax purview and taxpayers can thus enjoy the luxury of receiving such gifts without attracting any liability to income-tax.

GIFTS FROM WHICH RELATIVES EXEMPT?

Query:  I understand that gifts received by an individual from his relative even beyond Rs.50,000 in a year are treated as exempt in his hands from levy of income-tax. Can you please explain which relatives are covered for this purpose?

Reply: One of the important exceptions provided under Section 56 of the Income-tax Act, in regard to taxing gifts as income, is in respect of sums received by any individual from his/her relative out of natural love and affection.  For this purpose, the term ‘relative’ has been defined to include the individual’s spouse, brother or sister of the individual or spouse, brother or sister of either of the parents of the individual, any lineal ascendant or descendant of the individual or spouse and finally the spouse of any of the above-referred persons.  

Lineal ascendants of an individual would include his father, mother, grandfather, grandmother and so on.  Lineal ascendants of the spouse would include in-laws of the individual in the like category.  Similarly, lineal descendants of the individual and the spouse would cover their son, daughter, grandson, granddaughter and so on.  Thus beyond the direct parent-child relationship, Dada-Dadi, Nana-Nani, Pota-Poti etc. all get covered within the meaning of the term ‘relative’ from whom any gift received is treated as fully exempt.

Moreover, apart from the closest members of the immediate family such as parents, children, brothers and sisters, even uncles and aunts (such as Kaka-Kaki, Mama-Mami, Masa-Masi, Foi-Fua) and also in-laws in these categories have been empowered to give tax free gifts without any monetary limits.  

However, it needs to be borne in mind that cousins, nephews and nieces have been kept out of the list of ‘relative’ for the above purpose and therefore, gifts received from them would attract income-tax liability.

 

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