Under the Section 56(2)(vi) provisions, certain gifts are tax able as ‘income from other sources’. The provision is applicable for individuals as well as Hindu Undivided Families (HUFs).

If a gift is received by a Trust or A.O.P., it is not taxable as ‘income from other sources’. Check the provisions of the Section for the taxation of gift amount in a given financial year. It is crucial to understand the definition of the term ‘relative’.

A gift received by an individual from one’s spouse, or from one’s sister or brother, or from the spouse’s sister or brother, parents, or from a lineal ascendant/descendant of oneself (or one’s spouse) would be fully tax exempt normally. Also, any gifts of any amount whatsoever received from the spouses of any of these would be completely tax exempt.

Whenever one opts to give or receive any gift from one’s relatives, one must apply the test carefully to determine whether the individual concerned falls within one of the categories of ‘relatives’. If not so, the person would be considered a non-relative and gifts from him or her would be exempt only up to the defined extent in a financial year. It may also be noted that since a HUF cannot have relatives, gifts received by it in excess of the prescribed limit in a financial year would be liable to full taxation.

Some people are under a (false) impression that the act of gifting cash by itself will translate into automatic tax deduction. They are confused over the fact whether gifting would lead to a lower TDS deduction on salary. The reply is NO.

There is no deduction on tax per se for gifting to family. The tax planning strategy should seek to optimize post-tax income, (after having done with tax liabilities). Someone in the highest tax bracket when opts to invest in a FD from money out of one’s post-tax salary, the FD interest gets fully taxable.

However, if one was to gift this amount to one’s parents who invest the same, the interest earned would become tax free. However, this would not directly affect the TDS deduction. Keep in mind the fact that beyond a point, tax-saving through gifting is not possible.

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In the previous posting, we explained to you how gifting can be extremely helpful in tax planning. We now understand the finer aspects of this. People are worried that, the income from the source that contributed to the gifts would get ultimately clubbed in their hands. Some are even concerned about attracting a gift tax.

One should know that gift tax has been terminated since October 1, 1998. There are no worries over attracting any gift tax. Clubbing provisions will come into play in case of gifts to minor children and spouse. Major (above 18) family members (barring spouse) can be gifted any amount of money freely without the donor falling into the clubbing net.

However, there has to be clarity regarding the procedure and whether it is required to make a gift deed on a valid stamp paper. Generally, it is better to make a gift deed and have it registered (with due stamp duty). Such a step is only necessary for making high-value gifts like real estate.

For other ‘tax-free’ gifting transactions, all a donor needs to do is make a gift and the acceptance of the same by the recipient. In simple terms, the donor can make the gift and the recipient should accept it in writing (even a thank you note will do). Once this is done, it be would considered a gift. Preferably, mention the relationship between the recipient and the donor. Both sides concerned should retain this formal document for ready reference if and when needed.

Some people are worried over the fact that making a gift to parents may make it mandatory of the latter to file a return. Well, the purpose of this exercise is that the income from the gift should not lead to any taxable income.

Hence, care should be taken to make sure that the income made from the gifted amount does not take your parents’ income above the taxable level. Ideally, consult an expert to avoid any confusion!

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Gifts give a great joy, it goes without saying. They convey your emotions to the receiver, who in turn, appreciates your sentiments. Gifts enhance relations and strengthen bonds of love. But gifts also serve a practical purpose when it comes to financial planning. You may wish to know. Let me bring to your notice that gifts can serve as a simple albeit very effective tax planning tool.

The provisions of Section 56, relating to tax on gifts, along with the basic exemption limit provisions to make your income is tax-free are applied simultaneously, to ensure tax-free income.

An individual falling in a higher tax bracket, can manage to cut down on the tax liability and increase his or her capital into tax-free income through gifts. This is essentially made possible by tax planners.

The method they follow is to make a person give gifts from post-tax capital to the parents and major children, who mostly are non-taxpayers. To double the benefit, when the recipients of these gifts invest the same, the family can earn more tax-free income.

Of course, there are certain issues, precautions and clarifications that you need to seek from your tax consultant who will address all these aspects so that you are able to put this gainful tax planning strategy through gifting into practice.

In a nutshell, gifts given to your parents and children (above 18) will not invite clubbing provisions. We shall learn about the finer aspects of tax planning and gifting in the subsequent blogs.

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You will be busy celebrating and welcoming the New Year with your friends, family and colleagues - texting and calling them as well. This also is the perfect opportunity to share our joy through exchanging wishes and gifts.

The New Year gift basket is a not to be missed ritual. Here we offer some off-beat ideas and basic suggestions for you to create a gift basket for your boss, colleagues and friends.

• Always keep the hierarchy factor in mind. For your immediate bosses, the gift basket should be a tad bigger, and the gifts, that much more expensive.
• The basket that you gift your owner or MD should be the most impressive. Come up with a bottle of his/her favorite perfume; buy a branded shirt or get a classy pen set.
• The gifts you give may not be that much more expensive than the ones you give your colleagues, but should be packed creatively and presented in person.
• Decorate the handle with a bigger bow or shinier ribbon and you’re sending a sub-conscious message about his status.
• Find out what the person likes is looking to acquire before making a choice and that person really wants to possess. It is not always about buying a costly gift.
• If you want to be conventional, stick to office essentials like deodorants, classy pens, desk-top clocks, miniature calendars, etc.
• Colleagues in your department should be given the same gifts or goodies; you can skip the other departments unless you have forged special ties with some of them.

Make an impact with an impressive gift basket and after that, no one will be forgetting you in a hurry. Last but not the least, do your bit for society, when buying your gifts. Buy some products from an NGO.

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