Income Tax Returns (ITR) filing top hack: How you can gift and still save tax on top of HRA, tuition fee, more

Income Tax Returns (ITR) filing: This hack will surely tickle your imagination and also ensure your money remains with you. Read on to find out how. With the financial year to come to an end soon, people are exploring ways to save taxes. Investment under Sec 80 (C), 80 (D) are popular ways to save taxes. Similarly, people also use other eligible expenses such as tuition fees, HRA etc to bring down tax liability. Apart from these popular conventional tax saving methods, there is another way that is beyond 80C. You can use ‘gift’ as a tool to save taxes. Let’s check out what all you need to do, while using ‘gift’ as a tax saving tool.

1. What All Are Considered As Gifts?

If you receive or give anything without any consideration, then it is called a gift. It may include things like assets, movable and immovable property, precious metal, cash amount, cheque etc. 

2. How Much Gift Amount Is Exempted From Tax

If the value of the gift is less than Rs 50,000 in a financial year, then it is considered as tax free in the receiver’s hand. It is important to note here that if the amount of gift exceed Rs 50,000 in a financial year, then the entire gift amount becomes taxable. For example, if a person received Rs 20,000as gift From A, Rs 29,000 gift from B and Rs 5,000 from C, thenthe total gift amount, i.e. Rs 54,000 (A+B+C) will be taxable as it exceeds the exemption limit of Rs 50,000.

3. Understanding Gift From Relatives

Gift from relatives such as parents, spouse, siblings of spouse, own siblings and other eligible donors are completely exempt from the tax. There is no upper limit to claim exemption for such gifts. Suppose, a husband gifts Rs 1 lakh to his wife. That Rs 1 lakh will not be taxable in the hand of the wife, but the husband being the donor, will be liable to tax on that money. If wife further invests that Rs 1 lakh and earn an income on it, then that income will be clubbed with the husband’s income and it will taxed as per his applicable slab rate. However, if the wife invests that money to earn non-taxable income, then such income will remain exempt from tax. Instead of giving cash, if you gift gold or precious metal jewellery to your wife, then there will be no income generation from it, so no tax will be applicable and still your money will grow in the long term.

4. Gift Received On Marriage

If the gifts are received during the marriage, then gift from other relatives are also eligible to get the tax exemption. Bride and groom both are eligible to claim the exemption to the extent they have received gifts in their individual name. It is important that gifts are received close to the marriage the date. Bride and groom must take the benefits of this rule by claiming the exemption for entire gift amount. It is important to keep the records of gift received during the occasion, especially for valuable items such as jewellery and precious metals.

5. Gift From Employer

Gift from employer to its employee is exempt from tax to the extent of Rs 5,000 and if the gift value exceeds Rs 5000 then the entire amount is taxable.

6. Gift Under A Will

Gift received under the will or inherited gift or gift passed to the receiver on the death of the donor are exempt from tax without any maximumceiling amount.

7. Gift To Parents

Income generated on the amount given as gifts to parents are not clubbed with the donor, but such income is taxed as per the applicable tax slab on your parents. So, if you want to save tax, then gift an amount to your parents and invest such amount to earn high returns. For example, if you fall in tax slab of 30% and you want to invest Rs 30 lakh in an asset class that offers a return of 10% p.a. In that case you’ll earn an income of Rs 3 lakh in a year and it will taxed at 30%, i.e. you’ll be required to pay a tax of Rs 90,000. If you gift entire amount (Rs 30 lakh) to your parents and they invest it in their individual capacity, then both yourparents will get an income of Rs 1.5 lakh individually (below tax slab), and they will not be required to pay any tax on it. Just keep in mind that your parent’s total income, i.e. including own income and income from your gifted money is lower than the taxable slab.

Finally, when you use gift as a tool to save the income tax, then you need to be very careful. If you make any mistake in understanding the provision, then it could result in clubbing of income and you may need to pay tax on such transaction. You must discuss with your tax advisor/CA before using the ‘gifting’ provision to save the tax.

(By Adhil Shetty, CEO, BankBazaar)