Income Tax Provisions related to Marriage Gifts

It is customary in Indian for families to exchange gift at the occasion of marriage. This article deals with tax implications of such gifts received.

General Provisions for taxation of Gifts in India

Before abolition of the Gift Tax Act in  1998  the donor (giver of the gift) was required to pay gift tax on the value of gift over Rs. 30,000/-.  After the abolition, neither the recipient not the donor was subjected to any tax. This lacuna was grossly misused and which forced the government to bring in provisions to tax the gifts in the hands of the recipient in case the aggregate of the all the gifts during a year exceeded certain threshold limit. Presently this threshold limit is 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 providing for taxation of gifts in the hands of recipient, the lawmakers provided certain exceptions. Marriage gifts are one of the exceptions provided in the law. In India we have tradition where relatives as well as the bride and groom receive gifts on the occasion of marriage. Are all these gifts covered under the marriage exception, and therefore tax free? The answer is simply no. It is only the couple getting married who enjoys the exception and not all the relatives. The gifts received by the couple are fully tax free without any upper limit. These gifts need not necessarily be from the relatives only to enjoy this exemption.

So all the gifts received by the bride and groom, irrespective of value, are tax free in their hands but the other relatives have to include full value of the gifts in their income, whether received in cash or kind, in case the aggregate of value of all the gifts, including these gifts, received during the year exceeded 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 gifts received by bride and groom are fully tax free in their hands on the occasion of their marriage but some clubbing provisions will come into play if these gifts are received from certain specified relatives. Income arising from the gift received by a daughter in law from her father in law or mother in law is required to be added to the income of the in-law who had given 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 may be noted that the clubbing provisions will continue to apply on the value of the gift even after the asset gifted 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 realised 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 while accepting marriage gifts

Though gifts received at the occasion of one’s marriage is fully tax free but you need to take certain precaution before you record these gift in your records specially in case the gifts are of high 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 in case you are not able to give a satisfactory explanation in respect of any asset found credited in your books of accounts, the tax department will levy a flat tax @ 60%+surcharge instead of the same being taxed at the slab rate applicable to you. You will have to pay interest and penalty as bonus in such a situation.

In case you are planning to use the occasion of marriage in your family for money laundering, please be careful. In case the gifts received and recorded in the books come to the notice of the tax official during assessment proceeding 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. Moreover, in order to gauge the scale of marriage ceremony, the officer can ask for the video recording and photograph of various functions of the marriage. So look before you leap.

I am sure the above discussion has been useful to you.

Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant his twitter handle.