What are the Taxation rules on wedding gifts?

Gifts received on the occasion of marriage by the newlywed couple are tax-exempt. The exemption is not limited to gifts received from relatives only. Therefore gifts received from friends or non-relatives on the occasion of marriage will also not be taxable in the hands of newlywed couple.

What are the different types of wedding gifts?

No matter their cost, gifts received for the wedding are exempt from taxes. Gifts can be given in the form of money, real estate, jewelry, gadgets, moveable or immovable property, currency, and more.

Let's find out more about the concept of property, which covers the following:

  • Jewelry (Jewelry includes ornaments or utensils made of gold, silver, platinum or any other precious metal whether or not attach any precious or semi-precious stone)
  • Land and building (immovable)
  • Shares and securities (Securities Include debentures, bonds, and so on)
  • Drawings
  • Paintings
  • Sculpture
  • Any work of art
  • Archeological collection
  • Bullion (Gold and silver in their purest form)

The gifts are divided into two groups or “heads”:

Exempted (Tax-Free) Gifts

Individuals and HUFs will not be charged tax on monetary gifts or immovable property or prescribed movable property received as gifts in the following cases:

  1. A gift received from a relative. By relative, we mean:
    • In case of an Individual:
      • Individual’s spouse
      • Individual’s brother or sister
      • Brother or sister of the spouse of an individual
      • Either of Individual’s parent’s brother or sister
      • Individual’s lineal ascendant or descendent (if any)
      • Individual’s spouse’s lineal ascendant or descendent (if any)
      • A spouse of an Individual referred to in (b) to (f)

    Friend is not considered as a ‘relative’ as defined in the above list as per income tax act and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).

    • In case of HUF,
      • Any member of the HUF.
  2. Money received by the individual on the occasion of his/her marriage. Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax. Hence, monetary gift received on occasions like birthday, anniversary, etc. will be charged to tax.
  3. Money received in a will or as an inheritance.
  4. Money received in contemplation of the demise of the payer or donor.
  5. Money received from a local authority [as described in the Explanation to section 10(20) of the Income-tax Act].
  6. Money received from any foundation, fund, university, hospital or other medical institution, other educational institution, any trust or institution referred to in Section 10(23-C).
  7. Money received from a trust or institution registered under section 12AA or section 12AB.
  8. Shares received in connection with a demerger or merger of a company under section 47, Clause (vi-d) or Clause (vii), respectively.
  9. Under Section 47(vicb), shares received as a result of a business reorganisation of a co-operative bank.

Taxable Gifts

Other than the above exempt category, the following kinds of gifts are taxable in the hands of the recipients:

1. Money

Money can be given in cash, by cheque, or electronically. If the aggregate value of monetary gift received during the year by an individual or HUF exceeds Rs. 50,000 and the gifts are not covered under the exceptions discussed above, then gifts whether received from India or abroad will be charged to tax as 'income from other sources'.

The important point to be noted in this regard is the “aggregate value of such sum received during the year”. The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and not on the basis of individual gift. Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then total value of all such gifts received during the year will be charged to tax (i.e. the total amount of gift and not the amount in excess of Rs. 50,000). Gifts will be charged to tax on the basis of applicable slab rate.

2. Immovable Property

Individuals may receive land or buildings as gifts for Inadequate consideration or without consideration at all.

If the following conditions are satisfied than immovable property received without consideration by an individual or HUF will be charged to tax:

  1. Immovable property, being land or building or both, is received by an individual/HUF.
  2. The immovable property is a capital asset with in the meaning of section 2(14) for such an individual or HUF.
  3. The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000.

But in the following cases, gift of immovable property will not be charged to tax.

  1. Property received from relatives.

    Relative for this purpose means:

    1. In case of an Individual
      1. Spouse of the individual;
      2. Brother or sister of the individual;
      3. Brother or sister of the spouse of the individual;
      4. Brother or sister of either of the parents of the individual;
      5. Any lineal ascendant or descendent of the individual;
      6. Any lineal ascendant or descendent of the spouse of the individual;
      7. Spouse of the persons referred to in (b) to (f).
    2. In case of HUF, any member thereof.
  2. Property received on the occasion of the marriage of the individual.
  3. Property received under will/ by way of inheritance.
  4. Property received in contemplation of death of the donor.
  5. Property received from a local authority [as defined in Explanation to section 10(20)of the Income-tax Act].
  6. Property received from any fund, foundation, university, other educational institution,hospital or other medical institution, any trust or institution referred to in section10(23C).
  7. Property received from a trust or institution registered under section 12AA or section12AB.

Taxability of immovable property received without consideration :

In the case, where the property is received without consideration (i.e., without payment) and the stamp duty value (i.e., value adopted by the authorities to calculate stamp duty) exceeds Rs 50,000 than the entire stamp duty value of the property is chargeable to tax .

Taxability in a case where an immovable property is received for less than its stamp duty value :

If following conditions are satisfied, then immovable property received by an individual or HUF for less than its stamp duty value will be charged to tax:

  1. Any immovable property is acquired by an individual or a HUF.
  2. The immovable property is a ‘capital asset’ within the meaning of section 2(14) of the Act for such individual or HUF.
  3. Such property is acquired for a consideration but the consideration is less than the stamp duty value and the difference exceeds higher of Rs. 50,000 and 10% of the actual consideration.

In other words, if an individual purchases a capital asset, being an immovable property, and the stamp duty value of such property exceeds actual consideration by higher of Rs. 50,000 and 10% of the actual consideration, then the excess of stamp duty value over the purchase price will be charged to tax in the hands of the purchaser.

For instance, if the stamp duty value is Rs 10,00,000 and the consideration is Rs 7,50,000. As a result, the difference of Rs. 2,50,000 (which is higher than Rs. 50,000 and 10% of the consideration, i.e., Rs. 75,000) will be taxable in the hands of the recipient as income from other sources.

3. Moveable Property

If the following conditions are satisfied then value of prescribed movable property received by an individual or HUF will be charged to tax:

  1. Prescribed movable property is received without consideration (i.e., received as gift). And
  2. The aggregate fair market value of such property received by the taxpayer during the year exceeds Rs. 50,000.

In above case, the whole amount of fair market value (not the difference between FMV and 50000) of the prescribed movable property will be treated as income of the receiver.

Prescribed movable property includes shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion, being capital asset of the taxpayer. It is a exhaustive definition that means anything other than above are not included in prescribed movable property. In other words, nothing will be charged to tax in respect of gift of any item being a movable property other than covered in the above definition, e.g., Nothing will be charged to tax in respect of a motor car received as gift, because a motor car is not covered in the definition of prescribed movable property.

Taxability when prescribed movable property is received by an individual or HUF for less than its fair market value :

If the following conditions are satisfied then prescribed movable property (meaning has been discussed earlier) received by an individual or HUF will be charged to tax:

1) Prescribed movable property is acquired by an individual or HUF.

2) The aggregate fair market value of all such properties is higher than the consideration paid and the difference is more than Rs. 50,000.

For instance Mr. A purchased gold jewellery for Rs. 2,34,000, the fair market value of gold jewellery is Rs. 3,54,000. In this case the excess of fair market value over the purchase price will amount to Rs. 1,20,000 which is more than Rs. 50,000. Hence, the entire excess of fair market value over purchase price i.e. Rs. 1,20,000 will be charged to tax in the hands of Mr. A. It will be charged to tax under the head “Income from other sources”.

Income Generated from the Wedding Gifts

A newlywed couple is not taxed on the presents they receive at their wedding, but they are taxed on the income generated as a result of their gifts. For instance, if a couple got property as a gift and then they rent it out, the income they made in the form of rental received is taxed. The capital gain resulting from that property will also be taxed if the couple decides to sell it in the future.

It is advised to maintain sufficient documentation of gifts (such as gift deeds etc.) received at the time of the wedding as income tax proof in order to take full advantage of the tax exemptions that are permitted. You can show legal ownership of gifts and assets by maintaining a list of them.

Gifts Received from Immediate Family

Gifts from relatives, such as parents, spouses, and siblings, are not subject to tax. As they are your lineal ascendants, for instance, if your parents give you Rs 10 lakh in your account as a wedding gift, there will be no tax due.

New Bill to Charge Tax on Weddings

The Lok Sabha has enacted a new bill known as The Marriages (CRPWE) (Compulsory Registration and Prevention of Wasteful Expenditure) Bill, 2016, which would closely monitor wedding ceremonies. This is done in order to fully account for the quantity of dishes and visitors so that the entire amount spent on a marriage is estimated.

The government has not yet decided on the number of meals to be served and the number of guests to be invited. This will assist in assessing how much money people are displaying. According to the rules of this bill, everyone who spends more than Rs 5 lakh on a wedding must donate 10% of that sum to the Welfare Fund which shall be established by the appropriate government to assist the poor and the below poverty line families for the marriage of their daughters.

The primary goal of passing this legislation is to prevent expensive wedding spending and keep this celebration basic. This is done to discourage those who would use this occasion as a platform to display their wealth rather than as a special moment. Additionally, this makes it such that even those who can't afford to spend a lot of money feel pressured by society to engage in excessive spending.

To help impoverished girls who live below the poverty line get married, money from these families will be given to the poor girls' families and put into a welfare fund.

Conclusion

Any kind of gift received on the occasion of marriage will be tax exempt in the hands of the couple under the Income Tax Act, 1961. Gifts received other than the occasion of marriage are exempt from tax only if they are received from Relatives. If such gifts are received from non-relatives they are exempt if the value of gift is less than Rs. 50,000. In all other cases gift received other than the occasion of marriage will be charged to Income Tax.