In India, monetary gifts received by an individual or a Hindu Undivided Family (HUF) are generally taxable under Section 56(2)(x) of the Income Tax Act, 1961. However, there are certain exceptions where such gifts are not taxable. Let’s go through these exemptions in detail.

Exemptions from Tax on Monetary Gifts

Monetary gifts received by an individual or HUF are not taxable in the following cases:

1. Gifts from Specified Relatives (Fully Exempt)

As per Section 56(2)(x) of the Income Tax Act, gifts received from specified relatives are completely exempt from tax, regardless of the amount. The list of relatives includes:

• For an Individual:

  • Spouse

  • Brother or Sister (of the individual or spouse)

  • Brother or Sister of either of the parents

  • Any lineal ascendant or descendant (of the individual or spouse)

  • Spouse of the above-mentioned relatives

• For an HUF:

  • Any member of the HUF (gifts received from members are not taxable)

2. Gifts Received on Marriage (Fully Exempt)

Under Section 56(2)(x), any amount received as a gift on the occasion of marriage is completely exempt from tax. There is no upper limit for this exemption.

3. Gifts Under a Will or by Inheritance (Fully Exempt)

Any money received:

• Under a will

• By way of inheritance

• In contemplation of the death of the payer

is not taxable under Section 56(2)(x).

4. Gifts from a Registered Trust or Institution (Exempt under Certain Conditions)

If an individual or HUF receives a gift from:

• A registered charitable or religious trust (covered under Section 12A or 12AA of the Income Tax Act)

• A trust created solely for the benefit of relatives of the donor

Then such gifts are not taxable, subject to conditions.

5. Gifts from Local Authorities

Any amount received from a local authority (as defined under Section 10(20) of the Income Tax Act) is fully exempt.

6. Gifts from Recognized Funds and Institutions

Money received from:

• Educational institutions

• Medical institutions

• Recognized funds such as the Employees’ Provident Fund (EPF), Public Provident Fund (PPF), and others

is not considered taxable income.

7. Gifts Received Due to Sudden Death of a Relative (Ex-Gratia Payment)

If an individual receives an ex-gratia amount due to the death of a close relative, such an amount is not considered taxable income under the principles of personal bereavement.

Under the provisions of Section 56(2)(vii) of the Income Tax Act, 1961, gifts received by an individual or a Hindu Undivided Family (HUF) are exempt from tax if they are received from a “relative.” The Act defines “relative” for this purpose as follows:

“For the purposes of this clause, ‘relative’ shall mean—
(a) the spouse of the individual;
(b) the brother or sister of the individual;
(c) the brother or sister of the spouse of the individual;
(d) any lineal ascendant or descendant of the individual; and
(e) the spouse of any such person.”

Explanation in Simple Terms:

• Spouse: Your husband or wife is always considered a relative.

• Lineal Relatives:

  • Ascendants: Your parents, grandparents, etc.

  • Descendants: Your children, grandchildren, etc.

• Siblings:

  • Your own brothers and sisters are included.

  • Additionally, the brothers and sisters of your spouse are also regarded as relatives.

• Spouses of Relatives:

  • The spouse of your lineal ascendants or descendants, as well as the spouse of your siblings or the spouse’s siblings, are also treated as relatives.

If you receive gifts (movable property or money) from non-relatives and the total value during the year exceeds ₹50,000, the whole amount is charged to tax under the head “Income from Other Sources.”

This provision prevents individuals from circumventing tax by receiving multiple gifts just under the threshold from non-relatives.

Please refer to seection 56(2)(x) of the Income Tax Act, 1961):

“Any sum of money or property (other than immovable property) received without consideration by an individual or Hindu Undivided Family (HUF) in excess of ₹50,000 in aggregate during a financial year shall be taxable as income from other sources.”

As per Section 56(2)(vii) of the Income Tax Act, 1961):

“Where any immovable property is received by an individual or a Hindu Undivided Family (HUF) as a gift without consideration, if the stamp duty value of such property exceeds ₹50,000 and the donor is not a relative as defined under the Act, then the entire value of such property shall be taxable under the head ‘Income from Other Sources’.”

Summary:

• No Tax on Gifts from Relatives:
  Immovable property received as a gift from a relative is exempt from tax, regardless of its value.

• Tax on Gifts from Non-Relatives:
  Immovable property received as a gift from a non-relative is taxable if its stamp duty value exceeds ₹50,000; in such cases, the entire value is treated as income and taxed accordingly.

Depreciation allows you to spread the cost of a capital asset over its useful life. Under the Income Tax Act, this deduction is primarily governed by Section 32, and the most common method used is the Written Down Value (WDV) method. Here’s a straightforward guide on how to calculate it:

Step 1: Determine the Cost of Acquisition

• Starting Point:
  Begin with the purchase price of the asset. Add any incidental expenses (like installation, transportation, and registration fees) that are directly attributable to acquiring the asset. This gives you the asset’s total cost.

Step 2: Classify the Asset

• Type of Asset:
  Assets are generally classified as tangible (buildings, machinery, vehicles) or intangible (patents, copyrights).

• Depreciable vs. Non-Depreciable:
  Note that certain assets, such as land and goodwill (as per current provisions), are not eligible for depreciation.

Step 3: Choose the Appropriate Depreciation Method

• Written Down Value (WDV) Method:
  Under this method, depreciation is calculated on the remaining value of the asset after deducting depreciation claimed in previous years.

  • Calculation for the Year:

    Depreciation=(Cost of Asset−Accumulated Depreciation)×Prescribed Rate\text{Depreciation} = (\text{Cost of Asset} – \text{Accumulated Depreciation}) \times \text{Prescribed Rate}Depreciation=(Cost of Asset−Accumulated Depreciation)×Prescribed Rate

• Straight-Line Method (SLM):
  In certain cases (like some power generation undertakings), the Straight-Line Method is applicable, where depreciation is spread evenly over the asset’s useful life.

Step 4: Apply the Prescribed Depreciation Rate

• Rate Determination:
  The Income Tax Act specifies different rates for various types of assets. For example, buildings, machinery, and computers each have their own rates.

• Example:
  If a machine costs ₹10 lakh and the prescribed rate is 15% under the WDV method, the first year’s depreciation would be:

  ₹10,00,000×15%=₹1,50,000₹10,00,000 \times 15\% = ₹1,50,000₹10,00,000×15%=₹1,50,000

  The Written Down Value at the end of the first year would then be:

  ₹10,00,000−₹1,50,000=₹8,50,000₹10,00,000 – ₹1,50,000 = ₹8,50,000₹10,00,000−₹1,50,000=₹8,50,000

  In the second year, you’d calculate depreciation on ₹8,50,000 using the same rate.

Step 5: Record and Carry Forward

• Documentation:
  Maintain detailed records of the asset’s cost, the depreciation claimed each year, and the resulting Written Down Value.

• Continuity:
  These records ensure that the depreciation is correctly calculated over the asset’s useful life and help in future tax assessments.